NAR Reports 16% of Contracts Were Canceled in June - Why?

By
Real Estate Agent with Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com 0480809

Home Buyers are canceling more and more contracts, according to the National Association of REALTORS®. On average, 8-10% of contracts get canceled prior to closing. That equates to about 1 in 10.  NAR surveyed its members for the following stats. May 2011 saw only a 4% cancellation, whereas June 2011 saw 16%.  That's a little disturbing.  Why are so many people canceling their contracts?

national association of realtors surveyLawrence Yun, NAR's chief economist stated that "the sudden swing is surprising and worrisome, but that there are no hard statistics available on the causes."

I don't think you need stats to say one of two things. Either agents are showing buyers houses prior to talking with a mortgage professional, or Lenders are making their hoops smaller and smaller making it harder for people to qualify, though they claim to be easing some standards. 

There probably is a third option that buyers are so picky these days and are looking for a perfect house, and when their inspection report shows something other than perfect, they freak out and back out.

My money is mostly on agents showing buyers who are not qualified to buy.
  Just a couple of days ago, I received a call from a "buyer" wanting to look at houses but he wouldn't talk with a lender. He told me several times that he had bad credit so red flags are popping up. I suggested he talk with a lender first to see how bad his credit is so we could determine if it was a 2 month fix or a 12 month fix or more, but he didn't want to spend the time to get pre-approved to learn how to better his credit until he found a house worth spending that time and effort.

I told him he was putting the cart before the horse and you can't find a house, fall in love with it, only to find out you can't actually buy it. He kept telling me he understood, but that I didn't understand that he just wanted to look at houses. I'm sure there are many agents so hard-up for business that they would humor him and take him out, and then actually write an offer on a property if he fell in love... but if he can't actually buy that house, why are you humoring him?

Advice to agents: One of my "best practices" is to spend your time working with buyers who can buy. I'm not in this business to "show" houses, but I'm in this business to "sell" houses. I can't sell one if you can't buy it!
Advice to buyers: Get pre-approved, and know what your credit looks like! If you're too embarrassed to do that, think about how embarrassed you'll be if you have to cancel a contract with and tell sellers you aren't able to actually buy their house because you didn't worry about the loan part beforehand.

Here's more of the information from NAR.

**Are You Packed Yet?**

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Donna Harris, REALTOR®
RE/MAX Austin Skyline
www.DonnaHomes.com
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NAR Reports 16% of Contracts Were Canceled in June - Why? * was first published on donnahomesblog.com.

 

Comments (49)

Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Donna, 

One of the reasons why last JUNE 2010 there were fewer cancelations was because folks were taking advantage of the last month of the Home Buying incentives.  If they didn't close by June 30th, there was no incentive....

It will be interesting to see July 2010 to 2011 and the months following that.  

I think more folks are running into appraisal issues and just overall fear of a dropping market by mortgage institutions.

All the best, Michelle

Sep 06, 2011 07:23 AM
Mike Cooper, Broker VA,WV, MD
Cornerstone Business Group Inc - Winchester, VA
Your Neighborhood Real Estate Sales Pro

Interesting, Donna.  I've been much more rigid about driving customers around without a pre-approval letter.  I had one last year that had a pre-qual letter, but when we got to the lender I found that he did a short sale the year before.  Yikes! 

Sep 06, 2011 07:34 AM
Michelle Gibson
Hansen Real Estate Group Inc. - Wellington, FL
REALTOR

Donna - One thing I noticed in our area is agents are submitting multiple offers on short sales for one client and when one gets approved they cancel the other contracts.

Sep 06, 2011 07:44 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Shocking report ! Whenever possible I do a Buyer Consultation before showing homes !!! I have seen an increase on your reason #3 of late !

Sep 06, 2011 08:22 AM
Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

Donna, this recently happened on one of my listings. The buyer walked away for no apparent reason. It was a big step-up from his previous home. Either, he didn't end up qualifying or walked away because of cold feet.

Sep 06, 2011 08:24 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Donna - I wish it were something as simple as a $500 repair cost.  Actually, if it was only a $500 repair cost, I assure you that none of my borrowers would have cancelled a transaction because of $500 repair cost.  Unfortunately, for my borrowers who ended cancelling a transaction for property conditions, it was for a heck of a lot more than a $500 repair cost. 

Furthermore, it's not really that simple either.  I had a couple of cancellations this year because of very serious issues that were discovered during the inspection period where it was obvious that there had been a recent band-aid repair made (many contractors date their work right on the repair).  When the buyers and their agents confronted the sellers about why this repair wasn't disclosed, the sellers responded, "Oh, I forgot about that"SERIOUSLY!!!

Anyway, once a buyer catches a seller in a flat out lie, they tend to lose all trust and respect for them and they start to wonder what else the seller "forgot" to disclose.  As you pointed out, so many buyers are so nervous to begin with because of market conditions.  The last thing they want to do is purchase an undisclosed money pit.

Sep 06, 2011 08:39 AM
Linda K. Mayer
License # 01767321 - La Verne, CA
Realtor, SRES, SoCAL, A REALTOR YOU CAN TRUST

Donna, I think it's largely due to short sales.  Here, escrows are opening before the banks A-O-K and the buyers are continuing to look and put in offers just in case bank 1 says no.  At some point, the extra contracts have to be cancelled.

Sep 06, 2011 09:00 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Donna,  I'm betting some combination of agent " worst practises " and lender incompetence !

Sep 06, 2011 09:07 AM
Schuylkill Appraisal Services
Schuylkill Appraisal Services - Pottsville, PA

I also just read that 29% of closed deals in July/July were CASH deals. That's another stunning number

Sep 06, 2011 09:32 AM
Karen Crowson
Coldwell Banker Residential Brokerage - Rancho Bernardo, CA
Your Agent for Change

It's very tempting to ask someone - would you go to work on the weekend, and be away from your family if you weren't getting a paycheck?  How many people would say yes?

Sep 06, 2011 10:03 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Donna the problem i have is buyers who come with pre-quailification letters from well known banks or mortgage companies, they make an offer, it gets accepted and then make formal application to only get denied right away or a week before we were supposed to close for somthing that should have been looked at in the pre-quailifciation process.

Sep 06, 2011 10:43 AM
Bryan Robertson
Los Altos, CA

I'll be a lot of agents were pushing buyers to get into homes to take advantage of the Fannie and Freddie loan limits before the expire (assuming they don't get extended).  The pressure could have been too much for some folks who then back out.  That's just a guess but I'm sticking with it :)

Sep 06, 2011 12:37 PM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Obvious reasons that you have the gold star, but I'm sure that this goes on within the ranges that you have offered.

Sep 06, 2011 03:43 PM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Many unknown reasons, but IMO it has more to do with the buyers and their choices than anything else. Buying a short sale is not for the faint-hearted. Buyer's agents need to do a better job educating their clients.

Sep 06, 2011 05:55 PM
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Soldi advice...One we should all have in out play book.

One of my "best practices" is to spend your time working with buyers who can buy.

Sep 07, 2011 12:49 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Donna,

Excellent points. If a buyer is not willing to take the time to get pre-approved than there will be complications down the road. A pr-qualification is not enough in these economic times..best to submit and make loan application and know for sure if there is some work you need to do to get approval. Congrats on the feature..well deserved! 

Sep 07, 2011 01:09 AM
Dianna L. MacLaren
Coldwell Banker Residential Real Estate - Orlando, FL
GRI, CNE, SSRS

I don't show homes unless I have a preapproval letter in hand from my buyers and have talked to their lender.  Not interested in wasting time or gas! :)

In my experience and in addition to short sale issues, some of this definitely has to do with low appraisals and sellers not coming down to meet the appraisal figure, or buyer not willing or unable to come out of pocket for the difference.  I don't know how the market is going to stabilize or recover if the homes aren't appraising.  As long as there are REOs selling at rock bottom prices and driving down the comp values, we are going to be in a mess.

Its a crazy market out there!

Sep 07, 2011 03:35 AM
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

I'm glad to hear the vast majority saying they don't show houses unless buyers are approved. I wish this was an accurate sampling across all agents, but it's sadly not.

Sep 08, 2011 04:09 AM
Lorraine or Loretta Kratz
Crescent Moon Realty, Inc. & Land N Sea Auctions. - San Marcos, CA
Certified Negotiation Consultants

Donna:

I am always amazed at agents that waste their valuable time showing property and writing offers for buyers that are not capable of purchasing. I for one think that one of the reasons buyers were canceling contracts has a lot to due with the economy, when the stock market did its nose dive, many buyers got cold feet.

Sep 11, 2011 07:38 AM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

I certainly hope this is not the reason.  Of course I wish it weren't the case at all. 

 I think cold feet is a big part of what is going on as well.  We need to turn this market around.

Sep 11, 2011 06:21 PM