Berks House Deals Falling Apart at Higher Rate Than Normal
Why are there so many homes in Reading and Berks County going from pending sale back to active? Is it possible that the rush to buy a house in a fast paced low inventory market is causing the issue?
There's always some speculation that arises when a home with a "Sold" or "Pending" sign on it gets replaced with a "For Sale" sign. Unfortunately, this scenario is playing out far too often in Reading, PA, and Berks neighborhoods. According to Trend MLS records, over the past seven days, 14 homes went from Pending Sale to Back to Active status. In contrast, 133 homes during the same period went from Active to Pending Sale status. If we divide the number of homes that went back to active (14) by the pending sales figure (133) you have a failure rate of approximately 10.5%. According to Trulia.com, In 2016 the national average for failed real estate transactions was 3.9%.
Why Are So Many Berks House Deals Falling Apart ~ The Process Matters
Most people start looking for a home long before they decide to get qualified to purchase one. Often, these buyers find what they believe to be the home of their dreams and in their excitement, they call a real estate agent and ask to see it. The agent may ask if a lender has qualified them to purchase a home. If the agent does not show them the house unless they are mortgage approved, they will find an agent who will. The prospective buyer loves the home and tells the agent they want to make an offer. They find out there are several offers on the house. Now what! The agent calls their favorite lender and asks them to talk to the buyer and get them pre-qualified so they can submit a competitive offer on the home.
In their haste, the buyer talks to the mortgage lender on the phone gives them some personal information so the lender can run a quick credit check. Viola, within minutes the lender sends over a pre-approval letter stating that based on what the buyer told the lender on the phone and what items the lender could verify in less than 1 hour, the buyer can get the financing to buy the house. Amazing! Did I forget to say that the buyer rarely signs these pre-approvals and they have a slew of disclosures protecting the lender?
Most of us in the real estate business are aware that these pre-approvals are often not worth the paper they're written on. I am sure not all the failed deals are related to financing issues, but I would bet the ones that are all had a pre-approvals attached when the agreement was submitted. Still, We require the pre-approval when presenting an offer to an unwitting seller who rarely understands the process and just trusts we know what we are doing.
First time home buyers love Berks County, so we deal with lots of millennials who have student debts that are not always discoverable on a cursory credit check. Popular Home loans for first-time buyers include FHA, VA, and USDA. Often, These Government-backed loans require more in-depth inspection such as a CAIVRS report (Credit Alert Interactive Verification Reporting System). Other buyers may have issues relating to domestic relations not correctly reported until further research is done well into the real estate deal.
Is There a Better Way
One way I attempt to reduce that risk for my home seller clients is to ask that all buyers fill out a form known as the Buyer Financial Information (BFI) when submitting an offer. This form asks the buyer simple questions like Where do you work, What are your assets, What are your debts, do you own a home, have you filed for bankruptcy, do you have domestic liens, etc. This form then signed by the buyer is evidence of their known ability to obtain financing for the home. None of this type of information is generally on any lender pre-approval. I kind of look at the BFI as the Seller Property Disclosure (SPD) of the buyer. Would a buyer accept a house with a one-page inspection report that just said "the house is in acceptable condition, congratulations" without listing any information, NO!
There are far too many situations to address that arise relating to most buyer's ability to finance the purchase of a home. In other words, there is no free lunch here, and risk is always a factor in home financing. Mortgage pre-approvals, Buyer Financial Documents, and the like are merely guideposts meant to make us feel better and more educated about our decision. Sometimes the best real estate deal is not the one that offers the most money but the one that has the best chance of making it to settlement.
The BFI is used in many counties throughout Pennsylvania but has never been popular here in Berks for some reason. Maybe it is time for a change?
Knowledge is Power!
Jeffrey C. Hogue