Contract Failures and Cancellation Rates

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I got a call this week from a newspaper columnist who wanted to get my opinion on some of the latest data noted by the National Association of Realtors®. You see, it’s some pretty interesting stuff. Check this out:

Fifty-one percent of NAR members report that contracts settled on time in February, 18 percent had delays and 31 percent experienced contract failures; the cancellation rate was 33 percent in January and 9 percent in February 2011. Contract failures are commonly caused by declined mortgage applications and failures in loan underwriting from appraisals coming in below the negotiated price.

I can pretty much corroborate this data with my personal experiences helping agents throughout California with the processing of their short sales. My staff is pretty busy, and we often see trends in the market. And, this is one of the trends that we saw. Contracts are failing at a high rate. Here’s why:

Appraisals: Appraisals often come in lower than the previously negotiated price. Sellers do not want to renegotiate, or short sale agents have trouble challenging the bank’s short sale approval with their home appraisal.

Homeowner’s Association Troubles: In these tough times, the Homeowner’s Associations are facing challenges. Delinquency rates impact their financial stability, and this (in turn) impacts the lender’s ability to make a loan.

Mortgage Applications Are Declined: It’s often surprising to hear that someone who was previously qualified to purchase a home is suddenly declined. That’s why it is so important to work with a lender who really knows his (or her) stuff. Lender guidelines are changing all the time. And, it’s possible that someone who qualified two months ago may not be qualified any longer due to a change in those guidelines.

The good news is that, according to the article, “All-cash sales rose to 33 percent of transactions in February from 31 percent in January; they were 33 percent in February 2011.” I’ve been known to say that it is the equity buyer that is going to help stabilize the market. And, it appears that the upward change in February may actually be a step in the right direction.

(photo credit)

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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