When a home’s status changes to pending sale, it means the seller has accepted the buyer’s offer and both parties are ready to move on. Hooray!
But even when all the signs point to moving on, sometimes a home sale never takes off.
Although the failure of a pending sale is not common, it can happen, even in a booming real estate market. Last year, existing home sales totaled 6.12 million, an 8.5% year-over-year increase. However, a number of purchases did not go through. About 6% of all purchase contracts in the last three months of 2021 have been terminated, according to the National Association of Realtors®’ Real estate agent confidence index.
So what could possibly be causing real estate transactions to fail? Below, we take a close look at the top five reasons for expecting sales to fail. If you can plan ahead, chances are you can avoid these pitfalls.
1. The buyer changes his mind
It is human to question yourself, especially in situations where you are spending large sums of money. That’s why something as simple as buyer’s remorse can derail a sale.
“With multiple offers on properties and homes that only stay on the market for a few days, buyers often feel pressured to make a quick decision and can get caught up in the bidding frenzy,” says Kelley Decowskia realtor with Re/Max in Stuart, FL.
Since most buyers include contingencies in their offer that allow them to walk away — and many states offer a due diligence period on contracts — buyers have time to change their minds. But keep in mind that things get a lot more complicated once the purchase contract is signed.
Last-minute remorse can have serious ramifications for both parties and may even have legal implications, says Scott CogginLicensed Realtor and Team Leader of the Nashville Luxury Team at Fridrich and Clark Realty in Nashville, TN.
2. Buyer is unable to obtain financing
Unless you’re, say, a tech billionaire, you’re likely to finance your home purchase with a mortgage. But things happen, and sometimes a buyer can’t get financing. In most situations, if a buyer’s offer includes a financial contingency and the loan is not approved, the buyer will recoup the deposit.
If the buyer realizes that they cannot obtain financing, there are steps they can take to remedy the situation.
“Depending on the financing issue, you can try to find alternative financing and then refinance later,” explains Prabhjit Singh, a realtor with NAAAM Real Estate in Rockville, MD. “Financing alternatives like bank statement-only loans, which look at no other documents except your bank statements and credit score, are available and should be investigated.”
It’s in everyone’s interest that the sale go forward, Singh says, so sellers are often willing to extend time horizons if necessary.
Funding issues can also arise if buyers suddenly make many purchases at once.
“If a buyer makes a large furniture purchase with a new credit account right before closing, that can become a problem,” says Coggins. “When COVID hit I had a client who went unqualified five days [before] closing because his bank increased its debt ratio. We had to act quickly and used a local lender who did the paperwork in 20 days. Many of these problems can be avoided if buyers make wise decisions about their spending while waiting for the closing. »
3. Failed Home Inspection
For buyers, an inspection is an integral part of selling a home because it provides a complete picture of the property they are buying. But a failed home inspection often spells a loss for a sale.
If a buyer’s offer includes an inspection condition and the home fails the inspection, the buyer is allowed to negotiate repairs or rescind the contract.
“FHA loans and other loans require inspections by a specially certified technician. If a home purchase with an FHA mortgage contingency fails inspection, the sale is void,” says Tim LumnahCertified Buyer’s Representative at Berkshire Hathaway HomeServices Page Realty in Boston.
But if a buyer wants to go ahead with the sale, it can be done safely and responsibly under certain circumstances.
“You can negotiate with the seller to have a licensed professional come and do all the repairs,” Singh says. “Also, you can ask the seller to pay a guarantee for the house.”
4. The buyer has not sold the house he currently owns
“When writing an offer on a new home, buyers have the option of including a home sale contingency,” says Lumnah. “That way, if the house they’re selling doesn’t sell in time to close the new one, the new purchase won’t happen or will be postponed.”
But there are ways around that, including adjusting closing dates to save time, Coggins says.
“You can always get a bridging loan in the meantime, because as long as your house is ready to market and priced right, you should be able to sell it quickly,” Singh says.
5. The home valuation is lower than the purchase price
Both buyers and sellers know that a lender will require a home appraisal to ensure the home is worth the value the lender agrees to finance. But in some unfortunate situations, the home will value less than the approved loan amount. When this happens, it is difficult for buyers to know how to proceed. Should they stick with the sale and make up the difference, or walk away?
“It is not uncommon for the seller to ask the buyer to make up the difference, but whether or not the buyer has to do this depends on the gap that exists and the potential value of the property in the future. says Decowski. “I charged buyers between $5,000 and $10,000 to cover a gap that they are easily filling with equity now.”
Coggins agrees that it’s reasonable to go up to $10,000 more than the cash valuation.
“It can be the difference between making it home and continuing to find the one who got away,” he says.
But if the difference between the appraised value of the house and the purchase price is too great, the buyer can cut his losses and decide to leave.