I am writing this as our Federal Government is in its third
day of shutdown in an unprecedented move by the GOP and its allies to refuse to
raise the US debt ceiling.
The question today is not so much whether or not it will
affect the US Real Estate Market, it is actually how deeply it will impact
on-going and future transactions between home buyers and sellers, notwithstanding
the threat of further rise in interest rates.
In this blog, I do not claim to offer solutions but share
practical questions I had to ask myself in order to protect my clients’ best
Depending on the stage of your real estate transaction and
the side you are on (Buyers or Seller), here is what may
Tips for Home Buyers
If you are at a stage where you are working with a loan
officer to be pre-approved, know that your approval may be delayed for a very
simple reason: it is currently very difficult for a loan officer to get some of
the documents and conduct the checks required to complete your loan
application, e.g. get hold of your tax return, verify your social
security number, etc.
This means that it will very hard to put an offer on a
property and get your offer accepted unless your loan officer can get you a
pre-qualification letter and/or your Realtor is very creative in showing to the
seller that you do have the money to acquire the property. Even so, the
seller may prefer potential buyers that are already pre- approved.
If you are already in contract, meaning that your offer has
been accepted by the sellers, it is important to differentiate whether or not
your loan has been approved and the property has already appraised.
If the deadline for both the above mentioned milestones has
not expired, as a buyer’s agent, I would probably request ASAP an
extension of time to remove the loan and appraisal contingencies.
The next question is obviously : For how long?
Consider the worst case scenario, i.e. 14 days which is the
next deadline to resolve the on-going crisis. That said, I would also leave the
door open in case of early resolution by adding “or sooner” to the number.
Within x days or sooner always sounds better to sellers.
You should be aware that once an extension of time has been
granted, you can request to extend it again and again. Also bear in mind that,
as long as you do not remove the loan appraisal and condition of the property
contingencies, your initial deposit should not be at risk.
For more info regarding the contingencies in a purchase
contract please refer to
my previous blog.
If you are already in contract and your loan had been
approved, there is no issue with the appraisal and the condition of the
property, meaning that you should already have removed all the contingencies, the next step of your transaction should
be the funding of the loan a few days before the close of escrow.
The word is out that neither the FHA nor the VA loans will
be funded although it looks like applications for government-backed mortgages
will continue to be processed during a shutdown.
With regards to funding of loans backed by Fannie Mae and
Freddie Mac I have heard different stories depending on the banks. I strongly
believe that to date nobody really knows what will happen in the next few days.
The information given to the public being contradictory, it is crucial that you
contact your loan officer ASAP.
Not to be a pessimist, but as a buyer agent, I would ask for
an extension of time in order to
postpone the date of the close of escrow to avoid the following
are unable to close escrow on time because of the shutdown
did not ask for an extension your deposit may be at risk.
Tips for Home Sellers
If you have decided to list your property for sale the most
important question I would probably ask myself is: Is it the right time to sell
and what kind of buyer is more likely to buy the property?
If you are planning to deal with cash buyers (for instance
because your property is a true fixer upper) or if you do need the money ASAP
(to avoid foreclosure or a short sale), then I would probably
not delay putting your home on the market.
Selling now or postponing the sale until the governmental
shutdown is resolved is a difficult question to answer and it needs to be
investigated on a case by case basis.
If you are lucky enough to be in the buyers’ selection
stage, most likely all the potential buyers
are already pre-approved. For the reasons explained in the section on home
buyers, you should anticipate longer than usual deadlines for the removal
of the loan and appraisal contingencies as well as for the close of escrow.
If you are already in contract with buyers, as explained
above, the deadlines to close the deal will also probably be longer than
If you are selling a home contingent to the acquisition of
another property or vice versa, you’d better make sure that the deadlines on
both transactions are extended and coincide with one another.
In any event, and regardless of the stage of the transaction
you are in a as a home buyer or seller, I urge you to contact your loan officer
and agents for further guidance as soon as you can.
There is no doubt that the
light awaits us at the end of the debt ceiling tunnel. In the meantime, watch
out for your deadlines and be patient.