Closing a real estate transaction can often be a nail-biting experience and one of my recent closings was just this kind of excitement. It reminded me that there are lots of ‘i’s to dot and ‘t’s to cross that can surprise first-time home buyers. These are not often pleasant surprises! So, I thought I’d share with you a few of the pitfalls I’ve seen for buyers recently.
First, let me tell you about my latest closing. The buyer, Melissa, had been renting and was referred to me to buy her first home. We found a townhouse in the Longleaf in Vinings townhouse community and jumped right on it. Because of the growing popularity of this area, we were in a multiple offer situation, but we submitted an above-asking price offer with other favorable terms, and won the contract. So far so good!
Then…24 hours before closing, the lender alerted us to one of their guidelines and we had to make some changes to the deal. Ultimately, the closing was delayed five hours and Melissa lost out on $800 cash from the seller. This brings me to Pitfall #1.
Pitfall #1 – Now that lending guidelines have relaxed a bit, loan officers don’t always know all the new guidelines.
In our situation, the underwriter discovered that the seller’s contribution to closing exceeded their maximum guideline. Even though Melissa was using a conventional loan, she was only putting three percent down, which capped the amount of money the seller could contribute to closing costs. The loan officer never discussed the maximum which would have changed the way we negotiated during due diligence. Lesson learned: ask about maximum seller concessions.
Pitfall #2 – The Appraisal.
A common pitfall I see is in today’s market is the appraisal coming in lower than the contracted sales price. This can happen for a few reasons, but it puts the contract at risk if the seller isn’t willing to lower the contract price. In some situations, the buyer will have to pony up cash to pay the difference between the appraised amount and the contract price. Of course, I always warn my buyers of this possibility, and it’s my job to know the market activity in the area inside and out so my clients are prepared to negotiate.
Pitfall #3 – Cash-out Before Closing.
Buyers, especially first-time home buyers, are often a little shocked at how much cash they need to have on hand throughout the buying process. So here are some figures to keep in mind when buying in Atlanta: First, you will put down up to one to three percent of your purchase price for Earnest Money. Of course, you get credited for this at closing. The buyer is also responsible for paying the appraisal fee up front, which is about $400-600. The home inspection will run about $350, and if the house has a basement, you’ll need a radon test for $150, which can be done by the inspection company. Then there’s the property survey, if necessary, for $600-800.
Pitfall #4 – Always call the closing attorney before wiring money.
There’s a new scam in Georgia where criminals are posing as closing attorneys and directing victims to wire closing costs to the wrong account. So, always call the closing attorney using the phone number on their website—and not the phone number provided in an email— to verify wiring instructions directly from office personnel.
In the end, Melissa closed on her townhome and is happily getting settled in! Congrats to her! It was an honor helping her find a townhome with enough room for her nieces visit more often.
Closing a home purchase is never easy, but it certainly can be made less complicated by the team of professionals you surround yourself with. Remember, this is likely the largest personal financial transaction you will ever make, so don’t hesitate to ask lots of questions to make sure you understand the process and what you’re signing.
Of course, I’d love the opportunity to walk you through your next purchase or sale! Give me a call.