Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: NAR Reports 16% of Contracts Were Canceled in June - Why?

NAR Reports 16% of Contracts Were Canceled in June - Why?

Home Buyers are canceling more and more contracts, according to the National Association of REALTORS®. On average, 8-10% of contracts get canceled prior to closing. That equates to about 1 in 10.  NAR surveyed its members for the following stats. May 2011 saw only a 4% cancellation, whereas June 2011 saw 16%.  That's a little disturbing.  Why are so many people canceling their contracts?

national association of realtors surveyLawrence Yun, NAR's chief economist stated that "the sudden swing is surprising and worrisome, but that there are no hard statistics available on the causes."

I don't think you need stats to say one of two things. Either agents are showing buyers houses prior to talking with a mortgage professional, or Lenders are making their hoops smaller and smaller making it harder for people to qualify, though they claim to be easing some standards. 

There probably is a third option that buyers are so picky these days and are looking for a perfect house, and when their inspection report shows something other than perfect, they freak out and back out.

My money is mostly on agents showing buyers who are not qualified to buy.
  Just a couple of days ago, I received a call from a "buyer" wanting to look at houses but he wouldn't talk with a lender. He told me several times that he had bad credit so red flags are popping up. I suggested he talk with a lender first to see how bad his credit is so we could determine if it was a 2 month fix or a 12 month fix or more, but he didn't want to spend the time to get pre-approved to learn how to better his credit until he found a house worth spending that time and effort.

I told him he was putting the cart before the horse and you can't find a house, fall in love with it, only to find out you can't actually buy it. He kept telling me he understood, but that I didn't understand that he just wanted to look at houses. I'm sure there are many agents so hard-up for business that they would humor him and take him out, and then actually write an offer on a property if he fell in love... but if he can't actually buy that house, why are you humoring him?

Advice to agents: One of my "best practices" is to spend your time working with buyers who can buy. I'm not in this business to "show" houses, but I'm in this business to "sell" houses. I can't sell one if you can't buy it!
Advice to buyers: Get pre-approved, and know what your credit looks like! If you're too embarrassed to do that, think about how embarrassed you'll be if you have to cancel a contract with and tell sellers you aren't able to actually buy their house because you didn't worry about the loan part beforehand.

Here's more of the information from NAR.

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NAR Reports 16% of Contracts Were Canceled in June - Why? * was first published on donnahomesblog.com.

 

Comment balloon 49 commentsDonna Harris • September 05 2011 07:26PM

Comments

Donna  Excellent advise .I have had the same phone calls .Almost sounds like I talked to the same person .I agree with you 100% . I do not take buyers out without having them pre-qualified . Why waste your time and everyone else's time .

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) over 8 years ago

Great post Donna! Thanks for sharing! I think we all get calls like this, and you have to put your foot down and make these clients understand that you are the professional and you are doing them a favor! No point in getting hopes up or wasting everybody's time if the client is not even willing to see where they stand financially.

Posted by Jen Giraud (American Home Shield) over 8 years ago

Donna

NAR needs to get to the bottom of the cancellations.

Potentially there could several areas causing the problem.,

Buyers not being qualified and can't a mortgage.

Lender turning the buyer a couple of days before closing after they run a last minute credit report.

Buyers walking away from a short because the lenders are draging their feet.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) over 8 years ago

Its probably also the short sale deals that are falling apart.  Those seem to happen alot.

Posted by Chuck Carstensen, Minnesota Real Estate Expert (RE/MAX Results) over 8 years ago

Donna, I get that very same phone call every week! I end up saying "no". How much does it cost me to take the man to see houses all around the lake? My time invested, my gas, my liscense, and all? Too much. He was looking for a tour guide.

As far as the cancellations go? Yes, the lenders are tightening their "hoops" till you must be able to jump through one tinier than you are! It is just scary. I am truly convinced that our business is going to be choked to death by too many hands around necks. Good post.

Deb

Posted by Deb Brooks (Brooks Prime Properties Wichita Falls Texas) over 8 years ago

Hi Donna. It sounded like that buyer was looking for a "Tour Guide". I would have told him to call me when you are ready to work with a REALTOR, since I am not a "Tour Guide". My time is valuable, and I don't just show houses for the Fun of "window shopping".  Suggested!!

Posted by Jerry Newman, Texas REALTOR, San Antonio Military Relocation (Brown Realty, 210-789-4216,www.JeremiahNewman.com) over 8 years ago

Hi Donna...not sure what others think, here 's Buyers nor getting properly pre qualified for a mortgage.

I ask have you got a written mortgage approval..

Cheers

Posted by Fred Carver Personal Real Estate Corporation, Accredited Real Estate Consultant (RE/MAX Camosun Victoria BC Real Estate) over 8 years ago

Donna, my bet is first on lenders getting tough, then buyers walking because of inspection issues. I don't take people out who don't qualify, and any listing agent who allows the seller to accept an offer without some proof of ability to actually get a mortgage, well, no comment. (or in the case of cash buyers, proof of funds)

My real question is, are these cash buyers? They can change their minds more often than most people change their underwear, for a variety of reasons. The thrill wears off, they found something better to spend money on, the stock market report, who knows.

It is disturbing, we have been living it for longer than they are saying.

Every day brings a brand new challenge. My challenge lately seems to be full of inspection issues. Sellers who wear blinders and buyers who are not happy about it.

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) over 8 years ago

I say it a bit more harshly.  I am not a tour guide.  I am a Real Estate professional working for a living and at $3.60 per gallon for gas, I have to make a business decision to only show homes to prequalified buyers.

If you are not willing to spend 15 minutes with my preferred lender to qualify, then I apoligize, but I cannot set any time aside to show you homes.

Have a nice day.

Posted by Florida Tolbert Team Keller Williams Advantage, Keller Williams Land Luxury Division Specialist (Keller Williams Advantage III Realty in Lake Nona) over 8 years ago

A lot of the cancellations are probably due to buyers who were never really "qualified" in the first place.  In the last 12 months, there are really been no significant tightening of underwriting guidelines. 

FHA minimum credit scores did increase last October, but aside form that, there has been nothing else major when it comes to lending guidelines.

Posted by Rodney Mason, VP of Mortgage Lending - AL, FL, GA, SC, & TN (Guaranteed Rate NMLS# 2611) over 8 years ago

I think it is due to short sales. I have seen buyers with unrealistic expectations and agents that don't have a clue!

Posted by Ellie McIntire, Luxury service in Howard County & Catonsville (Ellicott City Clarksville Howard County Maryland Real Estate) over 8 years ago

Donna - I totally agree with you.  If a buyer isn't ready to spend 1/2 hour talking to get pre-qualifed I'm not ready to spend a couple of days driving you around to dream.  Especially with gas bumping $4/gallon.

Since we deal mostly with foreclosures, a prequal letter is required.  I'm beginning to think it should be required for ALL offers - foreclosures and fair market.  As for us - it will be!

Posted by Bill & Cyndi Daves, TeamDAVES - Your REALTORS In the GA/NC Mountains! (Hiawassee, Young Harris, Blairsville, Hayesville, Murphy and Beyond!) over 8 years ago

Donna - As an MLO, I only go into escrow with borrowrs that I have professionally and thoroughly qualified and with a 95% pull-thru/close rate, the only loans I don't close are those where something completely unforseenable happens (death, divorce, job loss, seller cancellation, etc...). 

However, my cancellation rate has taken a beating this year (cancelled prior to underwriting/locking).  This year, I have had more borrowers cancel their transactions than I ever have in my nearly nine years in the mortgage industry.  The number one reason (kind of two):  property conditions (or lack of seller disclosure of said property conditions).

There may be some truth to your comment about buyers wanting move-in ready homes and the reason for that is because many buyers really can't afford to buy a fixer, even with a minor cosmetic fixer.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Hi Donna,

Well my husband (a loan officer) stated his official thought to me on this very problem, right after my qualified and willing buyers cancelled escrow on the 16th day.  I am quoting"  Look Kym, the bottom line is these are the same people who could not make a decision to buy a house back in 2005 and 2006, when the market was so hot people were buying multiple homes.  How on earth are these people ever going to make a decision now that the market is so volitile.  It is just not in their nature to either make a decision or they think that if they wait longer the house prices will just go negative."  I may have to agree with him on this one.

Posted by Kym Wright (Prudential California Realty) over 8 years ago

Donna, that is exactly how I work,  I have a mortgage broker that I work with and send EVERYONE to her unless they have they own lender to work with.  I learned that lesson awhile ago.  I am in the same boat as you.  I am in the business of SELLING house... not SHOWING them

Posted by Steve Warrene, Pittsburgh Real Estate Investment Specialists (Your Town Realty) over 8 years ago

Hannah, Exactly, it's a waste!

Jen, Exactly!

Lou, True, there are more than the three reasons I listed.

Chuck, I don't see many short sale people back out, so that reason didn't even come to mind.

Deb, Great description of the hands around the necks.

Jerry, A Tour Guide, I am not!

Fred, "Written" is very important...

Andrea, I'm sure there is a portion of cash buyers, but financing rules around most of the country.

Kevin, I don't say it that harsh because I hope to have them call me when they're ready and not scare them off.

Rodney, The FHA MIP and other calculations completely changed last year so many buyers who were looking at higher prices should have been looking much lower with the change.

Ellie, As I mentioned above, I don't see much of that so I didn't even think of short sales as an option.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 8 years ago

Bill & Cyndi, I require it for all buyers, not just foreclosure lookers.

Donne, It's really sad when small repairs of under $500 can make a buyer not buy when that repair cost is probably less than a half of a half percent.

Kym, Very true about people who can't commit.

Steve, Great!

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 8 years ago

We're seeing more fallen through transactions, also.  It's very common when buyers are nervous and don't have confidence in the strength of the real estate market.  When prices are appreciating, we have very few fallen through transactions because buyers have confidence in the market.  When prices are wobbly, so are buyers' legs (and confidence).  (speaking of legs, I was pulling yours when I accused you of "riling things up" but I have a feeling you didn't understand my attempt at humor.)

Incidentally, the standard of practice o  ut here is pre-listing inspections paid by the seller.  This mitigates the third problem you cite: when their inspection report shows something other than perfect, they freak out and back out.

 

Posted by Lloyd Binen, Silicon Valley Realtor since 1976; 408-373-4411 (Certified Realty Services) over 8 years ago
I think it's after inspection and banks and Fannie Mae refusing to fix after putting lipstick on a pig. At least I had one like that this year luckily we found another and have since closed. It was a $9000 plumbing, electrical and venting problem FM refused to fix, sold 5 and 1/2 months later for $32000 less. I know other agents as well that had the same situation (especially with Fannie Mae)
Posted by Andi Grant, Helping 1st time buyers and home sellers in LA! (310-508-4354 | FirstTimeHomeBuyerRealEstate.com) over 8 years ago

Thanks for posting this statistic - we're seeing a number of deals get all the way to underwriting before getting rejected.  Apprailsals are also becoming problematic.

Posted by Kai Degner (Rocktown Realty (Harrisonburg)) over 8 years ago

Donna good advise on getting preapproval.  There is another reason for buyers dropping out before closing: appraisals.  I just had a case where the buyer backed out because the appraised value was below the contract price and the seller did not want to lower his price.

Posted by Shay Campbell, Raleigh, NC (Universal American Mortgage Company) over 8 years ago

I think you left out another reason why people are cancelling deals. They made offers on a few homes at a time, and whichever home gets bank approval first, they go with and cancel the others. With many short sales in my market, that's why I see a number of back on the markets.

Posted by Andrew Martin (REMAX Accord) over 8 years ago

Some good advice. Why "show homes" to someone who can't afford to buy one. That's a waste of time and money.

Posted by Alan Gross, Loan Consultant (PrimeLending, A PlainsCapital Company, Equal Housing Lender) over 8 years ago

There are a few factors that buyers are backing out and these reasons weren't part of their makeup a couple years ago. I'm on the third contract for a property and now the buyer wants every little thing fixed....even though they were told from the beginning the "As Is" addendum was the only reason the seller accepted. Listing 'possilbe future' things..... this is a short sale

Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) over 8 years ago

Donna:  I vote for your assumption that it's a combination of "all of the above".  A little of this.  A little of that .. and a bit of nervous buyer.  Given the way the news on the economy has gone in the last couple of weeks, this large uptick in cancellations really isn't a surprise.  And unfortunately once it is learned that cancellation is an option, it will enbolden others.  Something unheard of in the past for the most part.  Something I've personally experienced that is not mentioned in your post ... as a lender, I am seeing far more resistance "everything" too.  An unwillingness to do things, such as follow advice, take direction, follow-up on paperwork, listen.  The process is just not easy or very enjoyable for anyone, whether client or professional, as a result ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

the hoops are being provided by the lenders and the stranglehold that they are in to comply has a domino effect on housing.  There is no mortgage company in the world that wants the stips. the last minute changes and the aggravation, it's a universal issue. 

Posted by Glenn Freezman (Nucazza LLP & Home Buying Evolution, & Family Abstract, Inc) over 8 years ago

Donna, I think we all have properties that have had 20 and 30 showings. And yet, there aren't 20 or 30 sales 90 days later in that locale. I have a draft of a blog post on the "shadow inventory" of BUYERS out there, who, like their listing counterparts, aren't ready for prime time but we know they are there. In the case of buyers, they are looking and wasting agents' time, but they aren't business. 

Posted by J. Philip Faranda, Broker-Owner (J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY) over 8 years ago

Buyers aren't buyers until they've been pre-qualified with a lender. I really think they are wasting everyone's time until they are willing to get serious and they aren't serious if they won't get moving on the paperwork.

I remember running out to show houses only to realize it was a total waste of time. Now I get a lot more information up front and make a business decision about whether or not someone is worth working with.

For contracts that have "buyers" that aren't qualified, the contract should never have been executed/accepted without a strong written lender letter - that alone should keep some contracts from falling out.

Posted by Allen 2222 over 8 years ago

Donna, it would be really interesting if someone was keeping stats on this one. 

I came within inches of losing one with a highly qualified buyer, huge down payment, and appraisal nightmare.  If I'd been the seller, I'd have pulled the plug on it and looked for another buyer. 

Posted by Patricia Kennedy, Home in the Capital (Redfin) over 8 years ago

Donna, 

One of the reasons why last JUNE 2010 there were fewer cancelations was because folks were taking advantage of the last month of the Home Buying incentives.  If they didn't close by June 30th, there was no incentive....

It will be interesting to see July 2010 to 2011 and the months following that.  

I think more folks are running into appraisal issues and just overall fear of a dropping market by mortgage institutions.

All the best, Michelle

Posted by Michelle Francis, Realtor, Buckhead Atlanta Homes for Sale & Lease (Tim Francis Realty LLC) over 8 years ago

Interesting, Donna.  I've been much more rigid about driving customers around without a pre-approval letter.  I had one last year that had a pre-qual letter, but when we got to the lender I found that he did a short sale the year before.  Yikes! 

Posted by Mike Cooper, GRI, Your Neighborhood Real Estate Sales Pro (Cornerstone Business Group Inc) over 8 years ago

Donna - One thing I noticed in our area is agents are submitting multiple offers on short sales for one client and when one gets approved they cancel the other contracts.

Posted by Michelle Gibson, REALTOR (Hansen Real Estate Group Inc. ) over 8 years ago

Shocking report ! Whenever possible I do a Buyer Consultation before showing homes !!! I have seen an increase on your reason #3 of late !

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 8 years ago

Donna, this recently happened on one of my listings. The buyer walked away for no apparent reason. It was a big step-up from his previous home. Either, he didn't end up qualifying or walked away because of cold feet.

Posted by Tammie White, Broker, Franklin TN Homes for Sale (Franklin Homes Realty LLC) over 8 years ago

Donna - I wish it were something as simple as a $500 repair cost.  Actually, if it was only a $500 repair cost, I assure you that none of my borrowers would have cancelled a transaction because of $500 repair cost.  Unfortunately, for my borrowers who ended cancelling a transaction for property conditions, it was for a heck of a lot more than a $500 repair cost. 

Furthermore, it's not really that simple either.  I had a couple of cancellations this year because of very serious issues that were discovered during the inspection period where it was obvious that there had been a recent band-aid repair made (many contractors date their work right on the repair).  When the buyers and their agents confronted the sellers about why this repair wasn't disclosed, the sellers responded, "Oh, I forgot about that"SERIOUSLY!!!

Anyway, once a buyer catches a seller in a flat out lie, they tend to lose all trust and respect for them and they start to wonder what else the seller "forgot" to disclose.  As you pointed out, so many buyers are so nervous to begin with because of market conditions.  The last thing they want to do is purchase an undisclosed money pit.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

Donna, I think it's largely due to short sales.  Here, escrows are opening before the banks A-O-K and the buyers are continuing to look and put in offers just in case bank 1 says no.  At some point, the extra contracts have to be cancelled.

Posted by Linda K. Mayer, Realtor, SRES, SoCAL, A REALTOR YOU CAN TRUST (License # 01767321) over 8 years ago

Hi Donna,  I'm betting some combination of agent " worst practises " and lender incompetence !

Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) over 8 years ago

I also just read that 29% of closed deals in July/July were CASH deals. That's another stunning number

Posted by Schuylkill Appraisal Services (Schuylkill Appraisal Services) over 8 years ago

It's very tempting to ask someone - would you go to work on the weekend, and be away from your family if you weren't getting a paycheck?  How many people would say yes?

Posted by Karen Crowson, Your Agent for Change (Coldwell Banker Residential Brokerage) over 8 years ago

Donna the problem i have is buyers who come with pre-quailification letters from well known banks or mortgage companies, they make an offer, it gets accepted and then make formal application to only get denied right away or a week before we were supposed to close for somthing that should have been looked at in the pre-quailifciation process.

Posted by Scott Godzyk, One of the Manchester NH's area Leading Agents (Godzyk Real Estate Services) over 8 years ago

I'll be a lot of agents were pushing buyers to get into homes to take advantage of the Fannie and Freddie loan limits before the expire (assuming they don't get extended).  The pressure could have been too much for some folks who then back out.  That's just a guess but I'm sticking with it :)

Posted by Bryan Robertson over 8 years ago

Obvious reasons that you have the gold star, but I'm sure that this goes on within the ranges that you have offered.

Posted by Larry Bettag, Vice-President of National Production (Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001) over 8 years ago

Many unknown reasons, but IMO it has more to do with the buyers and their choices than anything else. Buying a short sale is not for the faint-hearted. Buyer's agents need to do a better job educating their clients.

Posted by Pamela Seley, Residential Real Estate Agent serving SW RivCo CA (West Coast Realty Division) over 8 years ago

Soldi advice...One we should all have in out play book.

One of my "best practices" is to spend your time working with buyers who can buy.

Posted by Gary L. Waters Broker Associate, Bucci Realty, Fifteen Years Experience in Brevard County (Bucci Realty, Inc.) over 8 years ago

Good morning Donna,

Excellent points. If a buyer is not willing to take the time to get pre-approved than there will be complications down the road. A pr-qualification is not enough in these economic times..best to submit and make loan application and know for sure if there is some work you need to do to get approval. Congrats on the feature..well deserved! 

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.750.6899) over 8 years ago

I don't show homes unless I have a preapproval letter in hand from my buyers and have talked to their lender.  Not interested in wasting time or gas! :)

In my experience and in addition to short sale issues, some of this definitely has to do with low appraisals and sellers not coming down to meet the appraisal figure, or buyer not willing or unable to come out of pocket for the difference.  I don't know how the market is going to stabilize or recover if the homes aren't appraising.  As long as there are REOs selling at rock bottom prices and driving down the comp values, we are going to be in a mess.

Its a crazy market out there!

Posted by Dianna L. MacLaren, GRI, CNE, SSRS (Coldwell Banker Residential Real Estate) over 8 years ago

I'm glad to hear the vast majority saying they don't show houses unless buyers are approved. I wish this was an accurate sampling across all agents, but it's sadly not.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 8 years ago

Donna:

I am always amazed at agents that waste their valuable time showing property and writing offers for buyers that are not capable of purchasing. I for one think that one of the reasons buyers were canceling contracts has a lot to due with the economy, when the stock market did its nose dive, many buyers got cold feet.

Posted by Lorraine or Loretta Kratz, Certified Negotiation Consultants (Crescent Moon Realty, Inc. & Land N Sea Auctions.) over 8 years ago

I certainly hope this is not the reason.  Of course I wish it weren't the case at all. 

 I think cold feet is a big part of what is going on as well.  We need to turn this market around.

Posted by Tni LeBlanc, Realtor®, J.D., Tenacious Tni (805) 878-9879 (Mint Properties, Lic. #01871795) over 8 years ago

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