The domino effect:

How delayed sales hold up

buyers

BY DAN VAN BENTHUYSEN | Special to Newsday

Article courtesy of Newsday

November 30, 2007

In April, Jay Guerin and his wife, Kirsten, found a house they loved in Glenwood Landing, a dormered ranch for $485,000. They knew they would be happy there and looked forward to having their older daughter in the school system. So they went to contract with a deposit.

"Problem was, we hadn't even listed our own house at that point," as Jay Guerin, 39, an engineer, tells it. "We had no idea what the market was like. When the 'comps' came back, they were not what we were looking for." He adds that he and his wife, a 37-year-old book illustrator, had made substantial improvements to their existing home, a renovated Colonial in Copiague, and as the result of a reappraisal their taxes had risen. "Even so, we were shocked by the comps." The comps, or list of comparable sales in the area, were not as high as they expected they'd be.

But the closing on their new home already had been scheduled for "on or about Aug. 1." "Basically, we bit our nails all summer. We had open houses. We did everything the agents told us to do. Dozens of people looked at the house, nobody serious."

Like many on Long Island and elsewhere, the Guerins found themselves making a delayed purchase of their new home, having to schedule a closing that went beyond the date called for in their contract to buy. Real estate agents, lawyers and lenders say that in a market already prone to occasional delays in assembling appraisals, title clearances, mortgage commitments and certificates of occupancy, deals are also now prone to postponements created by a lopsided market with much larger-than-usual inventory and a backlog of buyers who can't make a purchase until their own homes are sold.

By the second week of August, Guerin says, attorneys for the sellers in Glenwood Landing "were contacting us daily." The sellers had their own deal to purchase collapse - for reasons unrelated to the Guerins - but found another home to buy within two days. "There was nobody serious about buying our house, but there was one couple who had been back two or three times to look." The return visitors were teachers who liked the Guerins' home and location and wanted to be in a new house by the time school started. But they found Guerins' price too high.

Focus on real worth

"At that point, in Copiague and Amity Harbor there were at least 200 houses for sale," Jay Guerin says. "We had to really focus on what our house was worth. We had to get out of the mind-set that we were taking a loss, because we weren't really taking a loss. We bought that house seven years earlier. We didn't lose money. We just didn't make the killing people were making a few years ago in home sales."

They managed to find a price acceptable to both sides: The house was sold three weeks after the "on or about Aug. 1" date for $419,000. The Guerins' oldest daughter, Lily, 5, (they also have a 2-year-old, Molly) and the teachers got to start the academic year in new homes. But not all delays are resolved so smoothly.

A couple going through a divorce found a buyer for their home and retained Lita Smith-Mines, a lawyer whose Commack practice is focused on real estate. But the husband-seller, angry at his wife, did not show up for the closing on the sale and further informed Smith-Mines he was not going to show up for any closing because it appeared his soon-to-be-ex would be living with her new boyfriend after the sale. Smith-Mines says she informed her client that by blocking the sale he could be sued, not only by the buyers of his home but by his wife as well.

The ripple effect of this failed closing had just begun. "By the time I got home that day," Smith-Mines says, "the phone was ringing off the hook. I was getting calls from attorneys I had never heard of, attorneys for four and five deals down the line from ours who were being held up. One of those deals was for a home in Maine."

After three days and the intervention of the husband's mother, he finally came to a closing.

Each deal is different

Such stories do not surprise Mona Holzman of Laffey Associates. "After 24 years in real estate, I thought I had heard it all," she says. "But I am convinced now that no two deals are the same." Recently, she adds, agents in her office have seen some banks requiring a second appraisal on every home. Translation: more delay.

Patrick Creighton of Archer Capital says that although his firm does not usually require second appraisals, "if a bank is doing that, they're doing so because they want to be able to show investors that the mortgage money is being wisely placed, or because so much time has passed that the home needs to be appraised again in a changing market."

Phyllis Gelormino of Daniel Gale Sotheby's International Realty's Huntington office takes the long view. "I'm a calm person by nature, and I figure as long as the buyer still wants to buy and the seller still wants to sell, then obstacles can be overcome," she says.

And professionals can help, says Terry Sciubba of Sherlock Homes Realty Corp., which has offices in Sea Cliff, Glen Cove and Glen Head. "This is where lawyers can be miracle workers," she says. "You see lawyers get banks to extend commitments and make things happen that get you over the delays."

Most states, it turns out, do not use the "on or about" phrase when specifying a closing date. In New York, an uncompleted closing is not considered in violation of the contract unless it is more than 30 days past the "on or about" date specified. First-time buyers and sellers unfamiliar with this concept tend to think the date in the contract is the actual date the deal will be done. Very often it can be weeks later, making the biggest sale or purchase of one's life even more anxiety-filled, especially if a mortgage rate will be affected.

A number of real estate agents on Long Island say closing delays have always been an annoyance but they're more likely in the current market. Robert Campbell, who teaches real estate and finance at Hofstra University, says New York has extensive legal requirements, such as title insurance. "But I see those as good things since each requirement protects either the buyer, the lender or the seller," he says.

"What you have now is a market with triple the inventory it had in the past, and besides putting pressure on prices, it slows things down," he adds.

Campbell says he believes the domino effect of delayed closings is one of the dangers inherent in this market. "Our natural inclination is that we tend to buy first and then go about arranging to pay for it," he says. "In this market, it's particularly important to look first to selling what you have. ... The buying side ... will be pretty easy."

Not going out on a limb

Tonya Tillery, 33, an investigator for the City of New York Department of Homeless Services who listed her ranch in Roosevelt June 17, came to a similar conclusion on her own.

"I've gone to contract twice, but on both occasions just before the closing date the deals collapsed." She has not made an offer to buy elsewhere but would like to move into Baldwin or Valley Stream, where she feels her two young children, Trevor, 5, and Berlyn, 3, would benefit from a better school system (her son Jaquan, 17, goes to Oakdale Christian Academy. "I could find a house to buy in a week. I could go to close in a week. But I'm not going out on that limb unless I have a buyer."

Tillery made a second adjustment to her asking price on Nov. 15. She was originally asking $295,000; the house is now at $260,000. "With a house for sale on every block, you need an agent who can help you be realistic," she says, referring to Daphnee Doresca of Laffey Associates, her listing agent.

Dan and Stephanie Leo of Roslyn have been equally cautious. "I've owned four homes, and I saw that this market was different," says Dan Leo, 54, who works in advertising. "We listed our house nearly a year ago but didn't even look for a place to buy until we knew we had a solid buyer." Along the way, Leo says, he and his wife, a league tennis administrator, switched real estate agencies, and "we came down $300,000 from what we first listed. But if I had accepted one of those offers which I found so insulting eight months ago, I'd be ahead $70,000 above what we're getting now."

Coming down from the original listing was not an impossible adjustment for a man who suspected the house was priced too high from the start. "In the first six months we were on the market, the price was inflated," he says. He sold the historic home, once a one-room schoolhouse, for $605,000. He expects to close on a Northport house next month for "the high 600s."

Dan Leo recommends that a seller be prepared to step back every 10 days or so and re-evaluate the price and market conditions with the agent.

Bottom line? "I always tell my clients, 'You're not going to be homeless,'" says Denise Buser of Buser Realty in East Islip. She agrees a buyer or seller's wait can turn into a wait for someone else. "We're seeing delays that can affect two to three sales dependent on ours." But how to cope with the delays? "You pray ... You sweat. You wait."

Don't get ahead of your sale

Real estate experts say that with triple the usual inventory in the market, selling your house will be much tougher than finding a house to buy. Don't make a commitment to buy until you see your own sale going forward, they say.

Commack real estate attorney Lita Smith-Mines advises trying to find out as much as you can about your buyers' sale of their own home. How far along are they? Do their buyers have a mortgage commitment? Have they gone to contract? Has a closing date been set? "It's always a leap of faith," she says, "but the more you know, the better off you'll be."

Ideally, says Smith-Mines, your buyer is making an appreciable down payment (20-30 percent,) so "then the bank's appraisal doesn't have to come in right on the nose."

Consider a bridge loan only as a last resort, something to be avoided at nearly all costs. If you've been in your current home for some time, you can avoid the necessity of a bridge loan (most of which currently run in the 14 percent interest range) by taking out a home equity line of credit early in the process. Rates for these will be much lower.