- With a reputable local apartment agent, California property owners have the right to expect that an apartment sale process will run smoothly
- However, situations do arise that cause an apartment sale to fail, so educating yourself ahead can help you avoid surprises and get your apartment sold fast
- If you have experienced a failed apartment sale, there are still alternatives to selling an apartment that you can discuss with Fair Sale Homes
As an apartment owner in California, you may have recently experienced the hassle and frustration of trying to sell your apartment without much success. Even after finding a buyer and entering into escrow, the sale may fall apart. Whatever you call it, you are back are back to Day 1 of selling your apartment in California. Unfortunately, not all apartment sales go through successfully. Here are some reasons why your apartment sale could fail. By being aware of and dealing with these situations upfront, you can set up your California apartment sale for success.
Setting Apartment Prices Too High
One of the main reasons real estate sales fail in California is due to listing an overpriced property on the market. When the price of the property is too high, especially in a slow market, the apartment listing not attract enough attention, deter potential buyers, and therefore, prolong the selling process. Today in 2023, many owners selling their apartment in CA still believe they can still command the same prices they saw a couple of years ago. However, the numbers don’t play out the way they used.
Since early 2023, interest rates have increased past 6.0%, which as dramatically increased the monthly payment obligations of rental property owners. For buyers who are getting commercial loans to fund the purchase of the apartment, the only alternative to get the numbers to work is to bring forward more cash for the down payment or to ask the seller for a price reduction.
To avoid overpricing, research the local real estate market to determine the value of your property and set the right price. Ask your agent to show you market GRM and Cap Rates for properties successfully sold in your local area it the last 6 months.
Believe it or not… sometimes, by setting the price at or below market or where you actually want the final price to be, you may attract more attention, get multiple offers, and in the process, drive your price much higher with more buyer competition. Otherwise, expect for the apartment to sit on the market for some extra time and possibly, end up in a failed home sale.
Poor Apartment Condition
Another reason apartment sales fail in California is due to the poor condition of the property. Traditional buyers are often hesitant to invest in properties that require extensive repairs or renovations, especially in a highly competitive market like California. Prices are already high ub California, so buying a property and then putting more money into it to repair the apartment isn’t in the plans for most buyers.
Inspection Issues: Before or during the escrow period, apartment buyers usually pay for their their own inspections. Issues found during the inspection period may cause the sale to fall through. Once buyer’s have inspection reports in hand, they will either request that repairs get done in a timely manner (at seller’s cost) or request that the sales price get reduced. In the case where the seller is unwilling to lower the price of the apartment or make repairs to their apartment, the apartment sale will be at a standstill and eventually, the buyer will walk away from the sale.
Appraisal Issues: During escrow, as part of the buyer’s loan approval process, their lender usually requests for an appraisal in order to get a valuation of the building based on location, living space, lot size, and condition. Issues found during the appraisal may cause the sale to fall through either due to a lower valuation than the sales price or a flat out rejection due to the apartment building’s poor condition. Knowing that, consider making necessary repairs and upgrades ahead of the sale to enhance the appeal of your property and attract potential buyers. If you can’t afford to make the necessary repairs and upgrades upfront, expect for the home to sit on the market for some extra time or get cancelled in the middle of escrow, and possibly, end up as a failed house sale.
Code Enforcement Violations: If an apartment owner has been reported for a number of code violations, the list of code enforcement violations will often show up in the local city’s building and safety department database. Code enforcement violations, especially severe property items that risk the safety and well being of tenants living on the property, will often times scare away sellers who would rather buy an apartment without pre-existing issues. If you the seller can’t afford to make the necessary repairs and close out the code enforcement issue with the building and safety department, expect for the apartment to sit on the market for some extra time or get cancelled in the middle of escrow.
Financial Issues
Because most buyers of apartments don’t have all the cash to buy a California apartment, they put a % down as a down payment and get financing from a bank or lender for the remainder. Financing (getting a loan) is a crucial factor in apartment property sales, and any unexpected changes or issues can derail the sale altogether, ultimately, causing the apartment sale to fall through. In order for the lender to approve a loan for the buyer, they’ll need to a healthy set of documents.
3 Year Profit and Loss: With commercial properties, the buyer will typically seek to get a loan approval. Because size of loan is based on the proven profit and loss of the property. If the last 3 years, especially the last 12 months, indicate that the property is consistently losing money due to major repairs or lack of paying tenants, this would create a situation where a lender does not want to lend against the particular apartment. Unless the buyer can find another lender to approve a loan against the apartment asset, the apartment sale will need to be cancelled.
Rent Roll: A buyer’s lender will only take into account rental revenue potential for the units already leased up. In the case where the rent roll shows a low % of units leased up and collecting rent, the approved loan size will be smaller and the buyer would have to come forward with a much larger down payment. If the buyer cannot bring forward the larger down payment, then the loan will not get approved and the apartment sale will fail.
Appraisal: Buyers may face difficulties when the lender’s appraiser uncovers problems with the property during the appraisal process which reduces the amount they’ll lend or deny the loan altogether. In order to approve a loan amount against a home for a buyer, the lender sends out a certified appraiser. The appraiser takes your home’s features, age and condition, then compares it to other similar homes in the area and what they sell for. Because your home’s value is based on the value of similar homes in the area, any homes items that are not favorable in comparison will cause your home to be valued lower.
Overall, to avoid such issues mentioned above, the seller should spend extra time organizing financial statement, rent rolls, and making repairs on known issues or deferred maintenance items ahead of putting the property on the marketing. Otherwise, you the seller risks the house sale falling through while in escrow– a failed apartment sale.
Legal Issues: Title Issues, Liens, & Property Boundaries
Legal issues can also cause property sales to fall out of escrow, thus resulting in a failed apartment sale. This can include disputes over property boundaries, unresolved liens, claims to ownership on the property title, or other unforeseen legal obstacles that need to be addressed before the sale can proceed. . These legal reasons can vary based on the city and state where the property is located. Ensure all legal matters related to your property are resolved before putting it on the market to avoid any surprises that result in a failed home sale.
Selling a property in California can be a challenging journey, but understanding why prior home sales failed and having alternative paths can be the key to success. By working with a reliable realtor, making necessary repairs and upgrades, ensuring all legal matters are resolved, and exploring creative solutions, you can sell your property quickly and efficiently in California. So, don’t give up hope and stay motivated in your home selling journey.
Alternative: Sell Your Apartment to Fair Sale Homes
If you’ve had a California apartment sale fail (you fell out of escrow), don’t despair. If the required repairs are too expensive for you to make, you can still sell your apartment fast successfully without making those repairs. Professional real estate buyers from Fair Sale Homes can assess your situation and take on the repairs, so that you can sell your apartment and walk away with your profit. We have helped owners like you sell a house in Los Angeles after a failed escrow.
Are you thinking about buying or selling a home in CA? Fair Sale Homes is actively helping buyers and sellers in CA. Reach out to Fair Sale Homes to learn more about the various options available to you. There is never any cost, hassle, or obligation to work together. We are happy to answer any questions you have about buying or selling real estate in Los Angeles whether or not you choose to work with our team! (626) 863-7006