As a home seller, it helps to be aware of what can cause a home sale contract to collapse. Here are the eight most common reasons pending home sales fail.
Putting your house up for sale is labor-intensive enough without worrying about the sale going through. But the reality is pending home sales fail.
According to the National Association of Realtors, in May 2020, nine percent of home sale contracts were terminated. Not only that, but 76 percent of closed sales had contingencies attached. This greatly ups the potential for a pending home sale to fall through.
While it’s far more likely a contract will get delayed rather than cancelled, there are certain factors that make an offer riskier when it comes to getting all the way to closing. Avoid the hassle of having to start over from scratch. Watch out for these potential issues that often lead to the collapse of pending home sales.
1. Inexperienced buyer
Often, a first-time homebuyer lacks the experience, and sometimes the credit history, to make it through the buying process. Maybe they overestimate what they can afford, putting an offer on a house that’s outside their budget. Maybe a lack of credit, due to age, leads to issues during the mortgage application process. Either way, it’s good for sellers to note if an offer comes in from a first-time buyer. There’s more possibility for risk.
2. Home inspections
An essential part of any house purchase, an ideal home inspection reveals no surprises. However, if too many issues or something major gets uncovered, it can lead to a buyer walking away. Think foundational issues or roof damage. The buyer may also try to negotiate a new offer price, taking money out of your pocket.
If you’re selling to an off-market buyer or property investor, the inspection is often used by predatory buyers to drive the price down. Be on the lookout for suspicious asks.
Of course, sellers can avoid many of these issues by getting a home inspection on their own house in advance. You will have to pay out-of-pocket for a pre-sale inspection, but knowing in advance what red flags might pop up allows you time to either make repairs or adjust the price of your home accordingly. If nothing else, you’ll have the ability to warn buyers about the issues.
Perhaps the biggest contributor to pending home sales falling through revolves around financing. Loan approval may simply fail, or the money the buyer needs for the down payment may not materialize. There’s no way to know for sure if either of these issues are likely to happen. But sellers can take the proactive step of contacting the buyer’s lender to vet their financial strength. There’s nothing wrong with seeing what the likelihood is of a buyer getting approved.
Sellers can also protect themselves when it comes to buyer financing by knowing the difference between pre-qualified and pre-approved. A pre-approval letter doesn’t guarantee financing, but it presents a much stronger possibility than a pre-qualification letter. Avoid buyers who only bring a pre-qualification, or no financing letter at all, to the table.
Here are a couple other financing-related signs to keep an eye on:
This is a special stage in the home buying process where financing can fall through. Most lenders require an appraisal done on the home in question for purchase. If your home appraises for less than the sale price of the house, the lender may decline the mortgage. Then, you’re back to the no financing issue.
Either that, or the buyer may have to contribute extra cash to make up the difference. This could be cash they don’t have, making it a significant reason for the buyer to walk away.
This change in financial status can impact a mortgage once again. Even if the buyer already has financing in place, there’s usually a contingency on their situation staying the same. Changes like this, and the subsequent loss of future income can lead to a rejection by the lender, and the end of the home buying deal.
Related: How to Handle Housing After Job loss
4. Home sale contingency
This issue presents a slippery slope between buyers and sellers since, in order for everyone to get the home they want, a domino effect has to occur.
Often a buyer requests a home sale contingency, which states the purchase of this home is contingent on the sale of their current house. There’s no guarantee the buyer will sell their existing home within the approved timeframe, and then they’ll have to walk away from the sale. If you as the seller have the same contingency to the home you’re looking to purchase, you’ll lose your new house, too.
This starts the dominoes falling, and no one gets their new house. Any seller looking to avoid the collapse of pending home sales should not accept an offer with a contingency attached.
5. Property liens
If a seller has failed to pay all their property taxes, or owes money to a professional who’s done work on the house, there could be a lien on the house. This is money that must be paid out before a title can get transferred. The buyer won’t want to become responsible for these payments, so after discovery, they may back out of a deal.
It’s a required part of the home sale process for a mortgage company to research the property title, so it’s impossible for sellers to hide anything like this. As a seller, it’s best to check if any liens exist, and pay them off before listing your property. That way you come to the table with a clean title.
6. Attorney selection
Not all states require a real estate attorney to be present at closing, but for those that do, it’s best to get a little picky with your choice. Don’t select someone because you know them, focus on experience. Make sure the person you hire is an actual real estate attorney, and fully understands the home sale process.
Someone who’s not on top of things can actually cause a sale to fall through by:
- Missing deadlines — a buyer can lose certain rights if they miss any deadline within the home purchasing process, and it’s up to the attorney to manage this information so everyone stays on top of things.
- Failing to deliver the proper documents — there’s a lot of information, on both sides, required for a successful closing. An experienced real estate attorney knows what needs to get done and stays on top of both the buyer and seller to ensure there aren’t any closing delays.
- Misunderstanding the specifics of your particular sale — what if your attorney is well-versed in home sales, but you’re buying a condo? Every transaction is a little bit different. Make sure you verify that your lawyer understands what needs to get done for your particular home sale.
7. Cash scams
One of the most devastating ways pending home sales fall through is if the seller gets scammed. This can happen especially when dealing with cash sales if the seller fails to do their due diligence with the buyer.
The trick is to not get seduced by the idea of an all-cash offer and no financing hurdles. It’s best to avoid, or at least thoroughly check on, buyers who are living abroad and want to buy your home without ever seeing it. When a homebuyer sends their financial information or a cashier’s check for a downpayment or as earnest money, take the time to have your broker or lawyer verify all the information is legitimate before doing anything else. Never give your buyer money, and never sign over the deed before the closing has taken place in a legal setting.
Read more: How to Spot and Avoid Real Estate Scams
8. Seller missteps
A few other seller missteps that can lead to pending home sales falling through occur when the seller makes the sale too personal. The house is personal. You lived in it, created memories in it.
But the sale of that house is business. It’s a simple transaction that everyone wants to happen smoothly. Don’t let pricing reflect your emotional connection to the house. It can scare away potential buyers if they feel it’s too high for the neighborhood. Don’t dismiss a solid offer only because it feels “too low.”
If you’ve decided to sell your home yourself, approach staging your home from a business perspective as well. Remove those personal items that make the home yours, so a buyer can visualize themselves living there. As hard as it may be, pack up your family photos and knick knacks and give the place a more generic feel. Put your emotional connection to the house into storage to make the sale easier. Keep negotiations kind and professional, as well. You want to act like a relator and play nice.
Avoid the risks of selling your home
No one ever said selling a home was easy.
Beyond all the preparation to list your home, you also have to worry about the possible causes leading to pending home sales falling through. It’s almost not worth the trouble, unless you consider an alternative way to sell.
Sundae takes these issues off the table. With our marketplace, we advertise your home as is to our network of vetted investors so you can get the highest price possible without making repairs. Our Market Experts can make a fair assessment of your home as is and provide you an estimated offer range in minutes. Get to know our process, and the headache-free way we help you sell your home for the highest price.
Contact Sundae today to learn more.
Composed by a team of experienced content, marketing, and real estate professionals, the Sundae Blog is a go-to authority for tips, instructions, and data-driven insights aimed at helping homeowners maintain, renovate, sell, and buy homes, while navigating a complex real estate market.