February 11, 2022 | Jack Jenkins Homes
5 Reasons Pending Sales Fall Through in Real Estate
When a home’s status changes to sale pending, it means the seller has accepted the buyer’s offer and both parties are ready to move forward. Hooray!
But even when all signs point to go, sometimes a home sale just never takes off.
While a failed pending sale isn’t common, it can happen, even in a thriving real estate market. Last year, existing-home sales totaled 6.12 million, an increase of 8.5% year over year. However, a number of purchases didn’t pan out. About 6% of all purchase agreements in the last three months of 2021 were terminated, according to the National Association of Realtors®’ Realtors Confidence Index.
So what could possibly be to blame for real estate transactions fizzling out? Below, we take a close look at the top five reasons pending sales fall through. If you can plan ahead, chances are good you can avoid these pitfalls.
1. The buyer changes his mind
Second-guessing yourself is human, especially in situations where you’re spending large sums of money. That’s why something as simple as buyer’s remorse can cause a sale to fall through.
“With multiple offers on properties and homes only staying 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 Decowski, a real estate agent with Re/Max in Stuart, FL.
Because 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 mind. But keep in mind that things get much more complicated once the purchase agreement is signed.
Last-minute remorse can have severe ramifications for both parties, and can even have legal implications, says Scott Coggins, a licensed real estate agent and team leader at the Nashville Luxury Team at Fridrich and Clark Realty in Nashville, TN.
2. The 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 secure financing. In most situations, if a buyer’s offer includes a finance contingency and the loan isn’t approved, the buyer will get the earnest money back.
If the buyer realizes he can’t get financing, there are steps he can take to rectify the situation.
“Depending on the financing issue, you can try to find alternative financing and then refinance later,” says Prabhjit Singh, a real estate agent with NAAAM Real Estate in Rockville, MD. “Financing alternatives like bank statement–only loans, which do not look at any other documentation except your banks statements and your credit score, are available and should be investigated.”
It’s in everyone’s best interest for the sale to move forward, Singh says, so sellers are often willing to extend time horizons if necessary.
Financing issues can also come up if buyers suddenly make a lot of purchases at once.
“If a buyer makes a large furniture purchase with a new credit account just before closing, that can become an issue,” says Coggins. “When COVID struck, I had a client that became unqualified five days [before] closing because his bank raised their debt-to-income ratio. We had to move fast and used a local lender who got the paperwork done in 20 days. Many of these issues can be avoided if buyers make wise decisions about their spending while waiting to close.”
3. The home failed inspection
For buyers, an inspection is integral to a home sale as it gives a thorough picture of the property they’re purchasing. But a failed home inspection often spells doom for a sale.
If a buyer’s offer includes an inspection contingency and the house fails the inspection, the buyer is allowed to either negotiate for repairs or cancel the contract.
“FHA loans and other loans require inspections done by a specially certified technician. If a home purchase with an FHA mortgage contingency fails the inspection, the sale is quashed,” says Tim Lumnah, a certified buyer’s representative with Berkshire Hathaway HomeServices Page Realty in Boston.
But if a buyer is keen on moving ahead with the sale, it can be safely and responsibly done under certain circumstances.
“You can negotiate with the seller to get a licensed professional to come out and complete all the repairs,” says Singh. “In addition, you can have the seller pay for a home warranty.”
4. The buyer hasn’t sold the home he currently owns
“When writing an offer on a new home, buyers have the option to include a home sale contingency,” Lumnah says. “That way, if the home they’re selling doesn’t sell in time to close on the new one, the new purchase either will not occur or will be postponed.”
But there are ways around that, including adjusting closing dates to buy time, Coggins says.
“You can always get a bridge loan while you wait, because as long as your home is market-ready and priced correctly, you should be able to sell it quickly,” Singh says.
5. The home appraisal is lower than the purchase price
Buyers and sellers know that a lender will require a home appraisal to ensure the house is worth the value the lender is agreeing to finance. But in some unfortunate situations, the house will appraise for less than the approved loan amount. When this happens, it’s tough for buyers to know how to proceed. Should they stick with the sale and make up the difference, or walk away?
“It’s not unusual for the seller to ask the buyer to make up the difference, but whether or not the buyer should do that depends on the gap that exists, and the potential value for the property in the future,” says Decowski. “I’ve had the buyers pay between $5,000 to $10,000 to cover a gap that they easily make up in equity by now.”
Coggins agrees that going up to $10,000 over the appraisal in cash is reasonable.
“It can make the difference between winning the home and continuing the search for the one that got away,” he says.
But if the difference between the home’s appraised value and the purchase price is too vast, the buyer may cut his losses and decide to walk away.
The post 5 Reasons Pending Sales Fall Through in Real Estate appeared first on Real Estate News & Insights | realtor.com®.
Powered by WPeMatico