Home Sellers: How New Lending Practices Affect You
Sellers understandably get nervous when their buyers need an extension on the closing date of an escrow. They may wonder if the buyers are actually qualified, or if something is going wrong. They may even be tempted to pull the deal and put their homes back on the market.
But sellers should know that stricter lending practices mean longer escrows. Even well qualified buyers may have to prove, reprove and then prove again their income. They may struggle to get the appraisal they need. There are so many agencies now involved with the mortgage process that buyers cannot control; sellers should seriously consider cutting some slack to buyers who come into the deal with pre-approval and reasonable attitudes. In these strange real estate days, those are ideal buyers!
New Appraisal Practices
Gone are the days when a Realtor® could give you the name of an appraiser whose report on the home’s valuation would surprise no one. These days, because lenders require independent appraisers unconnected with the Realtor® or brokerage, home appraisals today can be problematic.
Today, appraiser is an objective third party, someone who has no financial or other connection to any person involved in the transaction. Appraisers are state licensed and complete coursework to qualify for their jobs.
Though the independent appraiser removed the possibility of conflict of interest in home valuation, he or she can also cause problems for your home sale. If an appraiser is not local, he or she may not understand the market the same way your seller’s agent does, and may disagree about the value of your home. An appraiser may also red flag major construction issues, making your home difficult to sell because lenders don’t see it as a good investment.
Home Prices in Flux Can Make Home Appraisal Less Predictable
When a local market is in transition (the prices are suddenly higher due to multiple bids or low inventory in relation to high demand), a home appraisal may not reflect the recent uptick. This could happen in the reverse as well, with a sudden downturn in home prices. Since the appraisal is based on historical data, recent changes in the market may not reflect in the appraiser’s report.
Expect income verification to take longer than ever before, particularly, but not exclusively, if your buyers are freelance for any portion of their income. To illustrate, my husband and I both have freelance income: even though we were pre-approved, we ended up having to offer both 2009 and 2010 tax returns and check stubs, and then had to complete 2011 early, turn it in and get the IRS to confirm the numbers. The process caused us to miss our first closing date, pushing us out two three weeks further, freaking out our seller, who threatened to put the house back on the market-- and almost collapsing the whole deal. Lisa Harrop, who works with Broker Tammy Wittren’s group at Northwest Mortgage in Oregon explains the issue:
“Unfortunately, because people used to falsify the tax returns they showed to their lenders, turning in a different set of figures to the IRS, many times we can’t fund a loan without IRS confirmation. That means even if you, the buyer, give us access to your E-file, we still need proof of processing the return. The IRS must give us transcripts before we can fund on the loan… just a rule (which is affecting tons of loans right now).”
In a nutshell, if everything else has gone fine through the offer and inspection processes , sellers should think twice before tanking the deal if lending gets complicated. If they do, and put their homes back on the market to “save time,” they may end up waiting yet longer to sell their homes, and may go through the same things again with the next set of buyers, but now with a house that’s “back on the market,” a label that sometimes (fairly or unfairly) stigmatizes that home.
Ultimately, sellers need to know that even very qualified buyers may have more hoops than ever, which means more time than ever, to get a loan 100% approved.