The team at Mister T Real estate explores some of the reasons for actions taken by certain property buyers and sellers which sometimes results in the entire transaction heading in the wrong direction and eventually the deal not going through. Let’s take a look at some of these observations coupled with tips.
Why Do Deals Fall Apart?
The real estate market is one of the fastest moving yet fragile markets out there. Since big money is involved, most people are very nervous and sensitive about the slightest misstep. Therefore, the transaction between buyer and seller needs to move smoothly and coherently. Usually this is difficult to pull off by oneself as emotions run high. However this is where the guidance and expertise of the real estate agent in charge can come in handy.
Being an agent in the industry comes with the experience of seeing a number of deals fall apart for the smallest reasons. The property then goes back on the market and the prospective buyer leaves, looking for an alternative property to buy.
One would think that the moment a buyer likes a property and confirms the price with the owner that the deal is done – but that is not the case. In this article we will explore 5 main reasons why deals fall apart.
1) Choosing The Wrong Real Estate Agent
Whether you are a buyer or a seller it is important that the real estate agent you work with is competent and coherent in order to guide the deal into fruition. Most high-streets brokers simply act as the middleman who find the property or buyer, leaving the negotiating, inspections and documenting to the buyer and seller. This may prove to be a problem to especially new home buyers or first time sellers who are unfamiliar with the formalities and procedures which follow through when purchasing or selling a property. A real estate agent who is absent and detached from the process would usually leave both buyer and seller frustrated.
2) Ignoring The Guidance of The Right Real Estate Agent
Choosing the right real estate for the job is essential in making sure a deal is done smoothly, with little to no hiccups. No one knows the real estate market inside and out like an experienced and knowledgeable realtor. The best real estate agent would advise you on which step to take, at each stage. They would update you on the pulse of the deal and find ways around problems that come up every so often. However, some cases have shown that the expertise of the agent is ignored and cast aside by either buyer or seller or in some cases, both.
For Example
In a recent transaction, the agent advised the buyer to pay a reservation fee in order to hold the property, ensuring that the owner will not entertain any other offers. The buyer in this instance sought the advice of their lawyer instead, who advised against the agent, claiming that no money should be transacted until the demands made by the buyer had been completed. The lawyer in this scenario also shot a sly remark saying, ”Do not listen to the agent, he is only there to make money…” Long story short, the seller grew frustrated waiting for a deposit from the buyer and eventually went ahead with another party who made a higher offer, leaving the initial buyer to miss out on their dream home.
The mistake in this scenario was the decision to take the lawyers’ advice over the realtors, in a situation which the lawyer did not understand. A lawyer is indeed very skilled at law and whose advice should be held in high regard. However, while they might understand real estate law, the finer details and complexities of a real estate transaction and it’s negotiations are quite different and complex. The agent is the individual who understands the pulse of the deal – the sensitivities between the buyer and seller – and his advice should be strongly taken into consideration. Further, there are many costs involved in purchasing a property such as stamp duty, legal fees etc. However, in the payment process, the agent is usually the last person to be paid for the services provided. The lawyer, the seller, sometimes even the bank, are all paid prior to an agent getting paid so the idea that the agent is only after money is inconsiderate and his advice should not be discarded.
3) Faults in Inspection
It is advisable that the buyer renders the services of a structural engineer to inspect the property thoroughly. Issues such as mould, leaks, foundational issues, structural issues and pests infestation are the more technical issues which a structural engineer can point out and provide a feasible solution for. It should be noted that the owner could agree to accommodate the repairs needed before handing over to the buyer ; however, in some cases the owner prefers to sell the property in the state that it is in (no changes or repairs done). This is something that the buyer and seller must agree on before the sale can proceed.
Defects which are discovered later on in the sales process could prove to be overwhelming for the buyer and could also result in the deal falling apart if the responsibility of fixing it isn’t mutually agreed upon at the start.
4) Issues with Documentation
It is important that the seller of the property has all his/her documents in place and up-to-date. It is very important that the following documents are in hand, before even marketing the property :
● Copy of the Deed of transfer
● Streetline certificate
● Certificate of Conformity (COC)
● Non-vesting document
● Extracts
● Notice of Assessment
● Approved plan (if house sale)
● Survey plan (if house)
● Certificate of ownership
● Proof of payment of last electricity and water bill
● Municipal tax payment receipt / government rates
● Power of attorney document (if required)
● Condominium plan (if apartment)
● Condominium by-laws (if apartment)
If even one or more of these documents are missing or outdated, the sale of the property drags on and becomes frustrating for the buyer, seller and agent – especially if the buyer hopes to do a quick sale or buy the property via a bank loan. A missing document means multiple trips to the local Grama Niladhari, Urban Council and Land Registry. In some cases a penalty must be paid for not obtaining documents such as the COC and Approved Plan. This delay can lead to the buyer getting frustrated or it can even give the seller time to reconsider selling altogether, thus breaking apart the deal.
5) Buyers Financing
The financial stability of the buyer is key when obtaining a loan. Some banks could disapprove of a loan for a variety of reasons – if the buyer is experiencing some financial difficulties, loss of their job, issues pertaining to the documentation or even if the underwriter found some last minute details which needed to be reviewed but couldn’t manage it on time. These all need to be considered prior to even looking for a property. It is not a good look when a buyer confirms to purchase a house and then discovers that he does not have the purchasing power and is ineligible for a loan. The state of the economy also plays a huge role in these instances – a catastrophic pandemic or inflation results in banks becoming more restrictive and lowering spending power. In such cases the seller should also consider selling at a lower price, considering the situation as otherwise in most cases the deal then falls through.
In conclusion it is important to note that in the field of real estate, whether it be buying or selling a property, deals are fragile. As indicated above, many of the reasons a real estate deal falls through are completely avoidable while some others are not.
So if you’re a prospective buyer or a property seller, it is important to have realistic expectations and to handle the situation wisely and without emotion. If you are aware of the above common reasons as to why a real estate deal falls through, you will put yourself in a much more informed position when dealing. Of course, having an experienced and competent real estate agent working on your behalf will also give you the best odds to ensure that the deal proceeds smoothly to completion.
We hope the article has shed some light and provided some perspective in terms of the real estate market when it comes to property transactions. Please write to marketing@mistert.lk if you are interested to learn more about engaging our services and don’t forget to check out our website www.mistert.lk or any of our social media platforms for more information about what we do.