There is a rumor that they are all failing because the buyer cannot finance the purchase. The reality is that is RARELY the actual reason, but sellers and seller’s agents DO like to blame the buyer’s ability to finance, even when that is not the case. Always better for it to be “the other guy’s fault” when asked:
“Why did the sale fail?”
The reality is it may have been the way the OFFER was structured, that caused it to fail.
Some offers are doomed to fail from the getgo.
Relying entirely on the Home Inspection, without adequately addressing the likely outcome in advance at time of offer, often causes a sale to fail. Some like to think “writing an offer” is only about “filling in the blanks”. HOW you fill in those blanks requires some skills of prediction and anticipation of outcome.
It’s important to make your offer with a rough expectation as to major repairs needed, as rarely can a home inspection resolve items costing in excess of 1% to 2% of the value of the home.
IF you have already taken the max credit toward your closings costs in your offer…
the Home Inspection negotiation becomes near impossible.
The Roof is often the “deal breaker” in many home inspection negotiations, because it has a known life expectancy and is one of the most expensive “fixes” that might be needed at time of sale.
Notice I did not say “one of the most expensive fixes that might be needed”
AS A RESULT OF THE HOME INSPECTION.
A “good” offer anticipates outcome. RARELY is the fact that the home needs a new roof something that can’t be anticipated at time of offer. Whether or not you allow for a new roof to be part of the asking price, depends on a few things.
It’s pretty darned obvious that the house in the photo above needs a new roof. You shouldn’t need a Home Inspector to tell you that.
BEFORE making an offer on this house, you need to anticipate the cost of a new roof,
so you can prepare your offer with a known and reasonable outcome in mind.
As you can see from the Zoomed In photo above, the cost of the new roof needs to include some pretty hefty repairs. The support for the roof is splitting and the roof is sagging.
Just sticking on some new shingles is NOT the only remedy for this roof.
You can guesstimate the cost of the shingle job by knowing the largest floor footprint from the County Records. It may be a 2,500 sf house in the mls. But the main floor footprint usually determines the outer corners of the roof. Is it 980 or 1,200 or 1,750? Once you have the main floor footprint (unless you can see that there is a larger 2nd floor foot print, in which case you would use that) you can show these two photos along with the sf coverage area to most any roofer and get a rough bid. You can email that info to three roofers and ask for a “ballpark” cost. The roofer needs to see the “the pitch” of the roof to determine cost. A higher pitch will need more shingles. Almost NO pitch may mean a shingle roof replacement is not the recommended “fix”.
Before addressing how the offer may be structured,
let’s look at a 2nd example that might have the same cost,
but a completely different remedy and offer process.
Unless you have the hope of turning your home into A Redroof Inn
a buyer of the home above MAY want to put on a shingle roof,
even though the roof may NEVER need to be replaced.
That roof will probably last longer than the house!
BUT…is that a positive?
Given where this house sits, on a quaint tree-lined street In-City where NO other roofs look like this, it’s possible that this “upgrade” may be seen as a “sore-thumb” and a negative…vs a positive.
For House #1 above, let’s say the roof will cost $20,000 to repair and replace. That’s a bit on the high side, but we have to go with the high estimate because of the deferred maintenance issues and things we can’t see, but can reasonably predict with regard to repairs needed beyond the actual roof shingles.
Now let’s talk about SALE FAIL due to BAD OFFER STRATEGY.
IF the buyer has an extra $20,000 to put on a new roof after purchase, AND deducts that amount from the offer price with the intention of putting on a new roof after purchase, the sale can “Fail Due To Financing”. The buyer MAY in fact be willing to buy the house for $20,000 less, and put a 20% downpayment still having the $20,000 needed for the repairs. BUT how likely is it that the Buyer’s LENDER will lend 80% of the cost to purchase after seeing that roof?
So…back to “Sale Failed Due To Buyer Financing Problems”. Was the cause really the fact that the buyer’s lending failed? Or the roof failed to meet the lender’s standard? Was it the buyer…or the house?
The sale failed because the agents failed to anticipate the lender’s response. There are many ways to resolve this type of issue in a real estate transaction. But ignoring the problem or thinking the seller is going to cough up $20,000 to fix the roof at time of inspection, is not realistic.
If the seller HAD $20,000, he likely would have fixed the roof before it got that bad.
The lender usually won’t let you escrow money for repairs to be done after closing. Sometimes, but not often. The best known remedy is to leave the cost of the roof fix in the price at time of offer and calling for a new roof to be put on prior to closing. Usually you can get a roofer to agree to do that and get paid at closing. BUT if it is a bank-owned property or a short sale, it gets a little tricker. Not impossible. But trickier.
In the 2nd example, the roof is perfectly fine. But you would be surprised how many buyers want to discount for what they don’t like or what they want to change, whether there is something wrong with it or not. Leaving THAT to time of inspection is a SALE FAIL. Sometimes the buyer wants the house because of many things and wants the seller to resolve “the roof issue”. Of course the seller paid a pretty penny for that roof and would be furious. So you have to build the offer around the buyer’s desires without involving the seller in the reasoning.
Buyers and sellers do not always agree on what IS a “defect” or what the seller should be expected to do about it.
Setting up a good “end strategy” at the time the offer is written,
is often the best remedy,
and one that will result in a closed transaction vs a Pending Sale failing.
Ardell- As you say, bad or failing roofs are often the cause of a RE
Sale falling through. (You’ll notice I didn’t say “Deal”- which I know
you hate). Maintaining any roof is an important part of home owner-
ship and that’s what we’re doing here on my Mercer Isl. PatchBlog. J-
http://mercerisland.patch.com/blog_posts/on-living-with-a-flat-roof
I have a roof fetish 🙂 I’m probably the only person who took a walk around Green Lake yesterday who didn’t take a picture of the ducks and did take 20 pictures of houses and property components. 🙂
I’m actually “saving” two transactions right now where the financing was the issue. One of my clients went to a “big bank” and the other was at a big local credit union…both loans were put together completely wrong. LO’s who work for big banks and credit unions are probably going to be a lower quality than those who are licensed…these two transactions I now have are proof of that. Banks and credit unions would rather hire LOs to “fill in the blanks” with an application instead of an LO who asks “why” and addresses issues upfront – why? Because un-licensed LOs are abled to be hired for a lower income.
Rhonda,
Would you mind checking back when you know and tell us if those loans can be saved? That would be interesting if it was the lenders vs the buyers.
Same point really. Sometimes it’s the professionals in the room that make the difference and not the house or the buyer or the seller. Often actually.
I have one closing next week where we used the builder’s lender because we only had 5 days from CO on new construction. I tried to get 10 days from CO so we could better use any lender, but it was a no go. I figure if the builder’s lender is late, it’s a seller not ready vs a buyer not ready.
We’re expecting CO today, but no heads up. I went over on Monday (per my New Construction post) and it wasn’t nearly ready. But they had a dozen guys working on it in the last two days and all of a sudden the builder as of yesterday, with no heads up, is thinking it can close tomorrow. 🙂
Gladly 🙂
I closed one of the above mentioned transactions last Friday… my clients sent me a happy photo of the whole family at signing and sent flowers to our office yesterday 🙂 They were supposed to close in late April however it really boiled down to the bank(s) not knowing how to properly read tax returns and work with self-employed borrowers. They are fantastic clients and I’m thankful they contacted me and that the agents and escrow were all so professional…especially dealing with the 3rd (and last) lender, ME!
My other transaction is still in the works… so I’ll let you know how that goes.
w00t! Good Job, Rhonda. YES! Self employment income is not mainstream lending anymore. 🙂 You can’t shop lowest rate when you have “quirks” and non-salaried people ALL have quirks. LOL!
I hope you can help the other people…but even one “save” is definitely worth celebrating. Reminds me of the story of The Prodigal Son. 🙂
Great article, sharing with my realtors on the east side (mountains that is…rural Eastern WA…Grant County). Especially comments about addressing repair items right up front to get them out there for discussion. Also, have to echo Rhonda’s comments about licensed loan officers versus the big box banks…I can’t tell you how many clients are surprised when I don’t hand them a 1003 loan application and say “Fill it out and get back with me.” Instead, by interviewing the client, you know how to set the loan up, where the potential underwriting pitfalls may be, and how to have an approveable loan from the beginning. Thank you, Gary
Envoy Mortgage
Ephrata WA
Unless you find buyers with money and start short selling or REO from the bank all traditional home sales are dead in Seattle. Unless you have $500,000 in cash to buy a house on the cheap and sell for cash none of you will sell any houses this year. I have already sole 39 REO’s so far, but thats because I have the money. Step up to the plate and quit selling to people who will be underwater next year anyway.
I’m glad that works for you, Michael.
This is not my first recession in this business. I personally will never make a living off someone else’s misery. Just not my business model. But if that works for you. Great!
Ok this article is exactly what I was looking for but it left me hanging. Here is my scenerio: We put in a bid of $70,000 on a short sale bank approved prive of $72,000 with seller paying $1000 closing cost for no refridgerator. (it was too moldy to salvage). It need a new roof and I had it appraised at $8700. (although I will get more appraises on it that was just the initial one for a ball park figure). Mom is gifting me $30,000 as a down payment and fixing the roof. How do get a lender to approve that? I have two mortgage brokers but they both seem a little off. (I am just not confident with them completely). One of them staqted I would have to fix the roof before closing. That seems a bit scary if the bank then pulls out the deal. I am no mortgage broker but cant we turn around, after the inspection says we need a new roof, and offer a selling price of $78,700 with the roof to be fixed before closing? Any help or advise here would be great. Thank you
Hi Jacqueline,
The way that is usually handled is the roof is put on within a few days of closing with a roofer who is willing to be paid at closing. Of course you have to be 99.9% sure it is going to close. Make sure your lender approves that large of a gift in advance and that you have followed all of the “gift procedures”. Your mortgage approval has to be totally nailed down to the last detail before that roof goes on the house.
If it’s a short sale, the owner likely doesn’t have enough cash on hand to buy a roof prior to closing. The lienholder who approves the short payoff is not going to shell out any hard money to pay for a roof. The buyer should not pay for an improvement on a property they do not own…but the lender is right. If it really needs a roof, most lenders want that roof ON the house before they fund your mortgage to buy it.
Here’s a post I wrote on the last one I did like that. It was a Bnak Owned sale vs a Short Sale, but pretty similar.
http://raincityguide.com/2010/06/12/buying-a-bank-owned-home-balls-in-your-court/
It’s not easy to pull it off and you need to know a lot to get this right…so hopefully you have a REALLY good BUYER’s AGENT and you are using a lender that Agent knows really, really well! It doesn’t sound like you do. I do not say that as a plug for me as I do not sell $72,000 houses that need a roof. 🙂 You are not likely in this area, or the area where I work if you are buying a $72,000 house.
You can try a rehab loan. Yes, you can pop the price to include the roof IF YOUR LENDER appraises it that high. Your talking about appraisals doesn’t make a lot of sense, as there is only one that counts, and that is the one your lender does. Since it doesn’t sound like you have chosen a lender yet, you need to build that roof into the price before the appraiser sees the contract.
This is a very touchy situation and takes a lot of skill to pull off….and the right roofer who will put the roof on at the last minute (hopefully you don’t have rainy weather) and get paid at closing. If it doesn’t close…it’s a HUGE mess! So you have to have a really good agent and lender backing you up and you need to pass that gift fund money forward from your mother according to the lender’s requirements.
Lots of possible monsters there if not handled correctly…but yes, your lenders are correct that most often for you to finance that purchase, the new roof has to be on by closing unless you do a 203k rehab loan.
ardell…. thank you for the response. Ok so here is my next question…… what if my mom were to buy the house out right for the 70,000 and then fix the roof. Would i then be able to take a mortgage on the house for 40,000? would that move around the problem? I am completely in love with house. it does need work. but with a mortgage of 400 (including taxes and insurance) I can afford to fix it up. It also sits on a double lot and has amazing potential. thank you again for your help…..
There’s probably a better way because depending on where you are there will likely be transfer taxes if your Mom buys it and then again when you buy it back from her. Or gift taxes if she buys it and transfers it to you. You need to talk to a lender and also to whomever is going to do the closing. Doesn’t sound like you have an agent. You might want to use a real estate attorney instead of an agent or in addition to one.
Sounds like you have lots of options to work this out. It can be done…you just need someone doing this with you, not info from a blog. I understand it’s a holiday weekend, but you need to line up the right professionals to help you tomorrow when businesses are open.
All of that is very doable. Where are you? Where is this house? City and State, not exact address.
I have a realestate agent that doesnt seem to really have the answers thats why i was researching on my own. I have a mortgage broker but its not whom my agent suggested because he was so way off. I live in central fl. I am a little lost what to do. maybe over anxious. thank you for youe help.. it is greatly appreciated.
Since gifting anything over $13,000 in one year is subject to gift tax, the easiest answer is likely to buy it in joint name with a $40,000 mortgage or $47,000 mortgage including the roof. Keep good records of the $13,000 gift at time of purchase and 75% ownership yours and 25% ownership hers at time of purchase. Then she can gift you $13,000 of the value after Jan. 1 of 2012 increasing your ownership to 95% by early 2012 and the balance in 2013 when she transfers title to your name.
Make sure you title it right of survivorship at closing. You must tell them as they don’t like to do joint with right of survivorship as the rule.
That would give you full ownership in short order, by January of 2013. Don’t forget to go back to the Title Company or a lawyer and transfer the title.
Your Mom as part owner can put the roof on as part of the 2011 $13,000 gift. Not sure if your Mom would use a portion of that gift for the roof, but if you buy it in joint name as a shared, not 50/50, equity arrangement, it shouldn’t matter. Call part of the gift the roof and up the mortgage amount.
Your Mom would then be paying for the roof, so there shouldn’t be a problem. They usually can put on a roof pretty fast in Florida, from what I have seen. Talk to a roofer. You can usually line all that up within maybe 48 hours of closing. You want to make sure the owner has full lienholder approval and you have full lender approval before the roof goes on. On mine the roofer was putting on the roof while the buyers were selling their loan papers. But you want to be sure the seller is ready to close when you do that. Whomever is doing the closing should be able to help you with that.
It’s really not uncommon, if your lender or agent haven’t seen it before, talk to whomever is closing your loan. They will be the one to say “this is ready to close except for the roof being on the house” so that as soon as the roof is on, it closes. Most often the lender has to come back and see the roof, but you can usually line that up in advance based on the roofer’s estimate of time to put it on.
In Florida on a small one story house, that might be one day…two tops. I did a larger house here…in the rain…in 3 days. 🙂 It’s a little messy as you want to make sure the seller has lienholder approval and has signed all of their closing papers before you get into the roof issue. The closer, in Florida that is usually the Title Company, should be able to help you with that.
Run that buy the professionals and your Mom’s tax person, but I think that would work. Have to run to meet a contractor re siding before closing vs a roof 🙂 I’ll check this when I get back to make sure it makes sense…kind of in a rush.
It’s more of a Suze Orman kind of answer, but I think it fits.
ok so this week has been extremely stressful. now where has been accomplished. my realtor suggested a mortgage broker that has no clue, I went somewhere else and my realtor is questioning everything she does. So it leads me here again. my mortgage broker want to submit a new contract (the bank accepted the 70,000 as is) offering 79000. basically 70,000 for the house 9,000 for the new roof in escrow. is this way off? my realtor swears this is so not going to work. she is applying for an FHA loan. not a 203k. I can not qualify for a conventional dues to my student loans which are in defferement for 2 more years. thanks for your help!!
Send me an email direct, Jacqueline. ardelld@gmail.com Maybe it’s just a miscommunication somewhere. As long as the lender requires the roof to fund the loan…it should be a no brainer. If you think it needs a roof, and the lender does not require one…that would be a different story. So not sure where you are getting the “needs a roof” from. Did you decide that? Does it have NO roof? 🙂
this is why you really need to be fully prepared when you buy a house. if the pending sale fails and you do not want to be blamed by those tactful sellers and agents, make sure to do your research thoroughly, get a home inspector and decide carefully how much you are going to write on your purchase offer.