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The Upside When FHA Buyers Cancel the Escrow
FHA buyers who cancel escrow pave the way for the next FHA buyer.
It’s doubtful that most potential home buyers start out the home buying process by thinking they will become one of those freaked out FHA buyers who might cancel the escrow, but it can happen even in markets of tight inventory more often than you would imagine. There are many reasons, none particularly substantial from an experienced listing agent’s point of view. The reasons tend to range the gamut, from unsophisticated to twisted to incorrect analyzations, but whatever the reasons the decision is right for them. Buyer’s agents do their best to manage these events; however, they are not always successful.
You can’t change the mindset of stubbornness in some people. It’s a fine walk for buyer’s agents. On the one hand, they may instinctively realize the buyer is unreasonable but, if they agree, they lose the buyer. Sometimes they are afraid to point out: No, the seller will not rip off the two-year-old brown roof and replace it with your favorite color of black. In that instance, the buyer would probably feel alienated and jump ship. They often feel there is not enough real estate business to allow them the luxury of choosing their buyers, so they stick with whomever they get.
The thing is you can’t blame the buyer’s agents when FHA buyers cancel the escrow. Their agents are doing the best they can. You also really can’t blame the buyers, especially when they are first-time home buyers. It probably hasn’t sunk in that all homes have defects, nor that they might not buy a home now, especially if they try to force the seller to meet demands the next buyer won’t make. Or, that it could take them another year to find a home. We have such reduced inventory in the Sacramento area, so little for sale, and almost every cute home will receive more than one offer for it. With every rejected contract, though, they learn more about the market in Sacramento and what it will take to buy a home.
Meanwhile, back at the ranch, the sellers might be wary that the next buyer will cancel the escrow. But that is unlikely. The odds are most buyers who go into escrow manage to close escrow. Sometimes, sellers want to take an offer from a conventional buyer over that from an FHA buyer — OK, most of the time, they do. But in a situation where it was an FHA buyer who elected to cancel the escrow, the seller is actually in luck. Because FHA appraisals are assigned a case number, and when the home immediately resells to another FHA buyer, that same case number will be pulled.
I sold a home in Natomas last year this way. We did not want a conventional offer but accepted FHA for that reason. Agents could not understand, what? No conventional offers?
An FHA buyer who cancels escrow means there are no appraisal concerns for the next FHA buyer. The seller simply lost a couple of weeks of marketing time, but there are dozens of excited buyers right around the corner who would love to buy that home this spring. All the reports have been completed, too, so the seller is able to supply full disclosure prior to an offer. When an FHA buyer cancels the escrow, it’s a slight setback but odds are the next buyer will be stronger, better informed and more deserving in the seller’s eyes, especially when there are no concerns of a low appraisal.
Better yet, the market has gone up. If you’re thinking about selling a home in the Sacramento area, call Elizabeth Weintraub, 916.233.6759. Put 40 years of experience to work for you.
Writing an FHA Offer for Homes Listed with Conventional Terms
Writing an FHA offer for a home listed with cash or conventional terms is sorta like trying to stuff a square peg into a round hole, yet buyer’s agents in Sacramento do it all the time. It’s not like we listing agents can play the listing police and stop the offers at the door. We have to present all offers to the seller, regardless of whether they fit criteria. It’s not the job of the Sacramento listing agent to determine whether an FHA offer should be presented; it’s just not our call to make, yet it can be a waste of time for everybody involved when buyer’s agents don’t do their homework.
It’s a lot of work for a buyer’s agent to write an FHA offer for a buyer. Not to mention, the emotional toll it takes on the buyer. Because after all, the buyer’s agent has shown Suzy Creamcheese the home of her dreams. Ms. Creamcheese has already figured out on which wall she’ll hang her flat-screen TV. She’s stuck photographs of this home on her refrigerator. She’s fallen in love with a home that a) she cannot buy and b) should not have been shown to her, and whose fault is that? Between the two agents, it’s not the listing agent.
The listing agent has most likely entered this particular home into MLS with cash / conventional terms. Was it an oversight or can the home be approved by an FHA appraiser, will it fit FHA repair requirements? Every so often in this business, you’ll find some listing agents who might automatically assume a home won’t pass an FHA inspection when it will, or their office staff might have forgotten to check a box and made a mistake when inputting the listing. The way to find out is to call the listing agent and ask.
Even so, the listing agent might not know the answer without asking the seller. Some sellers, quite frankly, do not want to sell to a buyer who is obtaining an FHA loan or a VA loan. There are a variety of reasons for that stance, which I won’t go into at this point, but one of which is often the fact the home might be tenant occupied with long-term tenants, and month-to-month long-term tenants require a 60-day notice in California. Not every seller wants to give their tenants a notice to vacate, for obvious reasons. Too much risk. Some prefer to let the buyer do it.
FHA guidelines require occupancy within 60 days. Notice from the date rent is due might exceed 60 days. Tenants might refuse to move. There could be problems. Yet, even if a buyer was willing to deal with the tenants, given a seller’s choice between a 15-day close with a cash buyer or a 35- to 40-day close with an FHA buyer — moreover, subject to all sorts of ways the transaction could blow up with that FHA buyer — which do you think a seller will choose? It’s a business transaction to many sellers, especially investors. They are not required to care about the buyer. It doesn’t make them heartless.
Buyers, before falling in love with a home in Sacramento, you might ask your buyer’s agent to find out whether the home you want to buy is a) listed to allow an FHA offer and b) likely to qualify for an FHA loan. Be aware that you’ll probably struggle with a CHDAP loan as well. Sacramento agents don’t create the markets; we just report on them, so don’t shoot the messenger.
