May Q&A: Bringing a Home to Closing

John R18 percent of its gross sales did not close. That is up from 17 percent a year earlier. Bringing a home to closing is the topic of this month’s question and answer session between Lane Hornung, CEO of 8z Real Estate and John Rebchook of Denver Real Estate Watch.

The Denver Post recently ran a front-page story that said as many as 23 percent of the homes placed under contract in April did not close. To clarify, that means more than 1 out of 5 homes under contract did not sell to the original buyer. In hot housing markets like Denver and the Bay Area in California, most homes have back-up offers from buyers in case the first deal collapses.

Still, 23 percent might be a bit higher than normal.

For example, MDC Holdings Inc., parent of Richmond American Homes, which builds in the Denver area and in California, as well as other markets, recently reported that in the first quarter, 18 percent of its gross sales did not close. That is up from 17 percent a year earlier.

John: Lane, do you think sellers need to be worried if 23 percent of the homes placed under contract aren’t reaching the closing table?
Lane: I don’t think so. I don’t think there is any kind of widespread epidemic of homes not closing. I know at 8z, we haven’t seen it in the numbers and I actually haven’t heard about it anecdotally from 8zers.

John: What do you think is going on?
Lane: 23 percent seems a little high to me. However, I would not assume the fall out in contract is necessarily because of the buyers.

John: So you think the uptick of homes not closing could because of the sellers?
Lane: That would be my guess. Sellers are in a very strong position. In fact, this metric could be another sign of the strength of the market.

John: Elaborate, please.
Lane: It’s very possible that after the inspection, for example, the buyer wants the seller to pay for some improvements. That can be a very legitimate concern for the buyer. But the seller might have someone waiting in the wings that is willing to pay the same price or even more, and isn’t concerned about the same issues as the first buyer. That could especially be true if the house generated multiple offers.

John: Could there be other reasons?
Lane: Of course. It’s possible that the buyer was frustrated by losing bidding wars and made a preemptive offer above the asking price. They may have gotten ahead of themselves and either got cold feet or couldn’t qualify for the loan.

John: Even if the home ultimately sells, it is frustrating for the seller when a deal doesn’t close when expected. What can be done to try to minimize the fallout?
Lane: This is preventable. At 8z, we like what we call the California-style listing. How that works is you accept offers at a certain time and then the sellers review all of the offers at the same time.

John: What are the advantages of the California-style listing?
Lane: It allows the seller and the listing broker to really vet and compare each offer. You can make sure they have all their ducks in a row, from financing, if it is not a cash offer, to their move-in date. I think some listing agents might still be simply accepting the first offer. What you want as the seller is the best offer, not necessarily the first offer.

John: Is the California-style listing only good for the seller?
Lane: I think it is good not only for the seller, but for the buyer. It gives both sides a little more time to get a really solid contract.

John: So in a market like this, it sounds like it is critical to have the right listing broker.
Lane: Getting a home under contract is getting to first base. Getting it closed on time, at the highest price possible and with the best terms is getting it across home plate. You want a broker who hits a homerun.

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