Smoking Guns & Yellow Flags

I think it’s fair to say that — as a rule — compared to “laymen,” Realtors put much less stock in things like Seller motivation; historical information like what the owner paid (unless it raises the prospect of a short sale); and even representations (or lack thereof) in the Seller’s Disclosure.

That’s because the building’s condition ultimately speaks for itself.

Every transaction I’ve ever been a party to has been accompanied by a professional inspection, and a good inspector will catch most (if not) all of the major issues with a home.

The same goes for determining value, which is established by closely analyzing the “Comp’s,” or comparable sold properties (vs. scrutinizing the Seller’s behavior).

One Exception

So, what’s the one exception to not worrying about a For Sale home’s recent MLS history?

When I see a property with a pattern of “Pending” sales switched back to “Active” status.

What that typically means is that the home got past inspection — the point when most listing agents switch the home’s status from “Active” to “Pending” — but that the deal then derailed for some unknown reason.  

Multiple times.

What’s that about?

Yellow Flags

Without knowing the home in question, it’s hard to say.

But the likely, generic explanation is that the Buyer’s Financing Addendum failed.

Which really just begs the question, “why did the Buyer’s Financing Addendum fail?

One possibility is that the Buyer ultimately wasn’t strong enough financially, and the bank’s underwriting department rejected their loan.

That’s been known to happen these days — preapproval letters notwithstanding.

But you generally don’t see it happen multiple times, with the same home.

Golden Rule

Instead, the likelihood is that one or both of the following is true:  1) the home didn’t appraise, and the Buyer and Seller couldn’t agree on an adjusted sales price; and/or 2) there is some issue with the home’ s condition that the bank is concerned about, and won’t lend until it’s resolved.

When the Buyer and Seller can’t agree on how to make the bank-mandated repairs prior to closing . . . no loan.

To be sure, the foregoing is just educated conjecture.

But the saying, “fools rush in where angels fear to tread,” applies to real estate, too.

P.S.:  Yes, occasionally Buyers back out of deals even after their financing comes through.

However, in my experience that’s relatively rare — not to mention expensive for the Buyer, who should expect to lose their earnest money in such a situation.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

Leave a Reply