5 Reasons Home Sales Fall Through
Category : Sales
I’ve seen it time and time again, you get your home under contract and for one reason or another, the contract fails, and you are forced to put your home back on the market. It can happen right after you go into contract, and it can happen at the closing table. The reasons vary from underwriting not giving final approval, poor inspection, the buyers simply changing their minds to the survey coming back with surprises.
My best advice to anyone selling your home is to be prepared for anything and be willing and flexible to work around any issues that arise.
I have always believed that knowledge is power! If you are educated then you are better prepared for what may lie ahead. The easy part is finding someone interested enough in your home to make an offer on it. Then, negotiating a fair price everyone is happy with and the details of how the sale will play out with the details of the contract. Like I said, that is the easy part. The hard part is keeping the deal together and getting everyone to the finish line when the title and deed legally exchange hands.
There are so many little to big things that can kill a deal. I am going to go over 5 of the most common reasons a home sale falls apart.
1. Buyer Financing
If a buyer’s credit score and income to debt ratio numbers look good, they are in the ball game when it comes to obtaining financing for a mortgage on your home. Try to focus on Buyers who have been pre-qualified, or even better, pre-approved for a mortgage by a lender. There is always the chance that the underwriting will reject it during the process, but these Buyers have a higher chance of getting through the process and making it to closing.
Another good tip for Sellers, is to keep in touch with the buyers agent and make sure the process is moving along smoothly to avoid any last minute surprises.
2. Low Appraisal
If your home does not appraise for the selling price you and the Buyer have agreed on, then this could be a deal killer. For those buyers who are getting financing to purchase your home, their lender will only lend up to the maximum of the appraised value of your home. So, if the home appraises lower than what your have sold it for, the buyer would be forced to come up with cash to make up the difference at closing.
If the buyer can not afford to or be able to come up with the cash for closing then one of two things will happen. One, the deal will be killed and you will be forced to find another buyer and rethink your asking price for the home. The better alternative is to simply lower the selling and agreed upon price of the home so that the buyer will be able to get lending approval for the sales price of the home.
You can always request a second appraisal, but this typically will come out of your pocket and there is no gauranty that the second appraisal will come in at a higher price. In fact, the second appraisal could come in at a lower price.
3. Home Inspection Surprises
The main purpose of the home inspection is to protect the buyer from purchasing a property with major flaws that need replacement of repairs. The main areas of concern are the roof, electrical, plumbing and WDO (wood destroying organisms).
As a seller, it is a good idea to always know the condition of your home. Once you have decided to put your hoise on the market, it may not be a bad idea to invest in a home inspection. You can identify and issues before putting it on the market, and then use that as an added bonus to potential buyers as a courtesy.
4. Buyer’s Remorse
This is one situation where, as a seller, you really do not have much control over at all. For the buyer, purchasing a home can be a very stressful process. The deed of searching for the one perfect home alone is enough to stress out a buyer. Then factor in the process of getting approved for a mortgage, paying a large amount of money for a home and knowing they are tied down for up to 30 years. It is more common than most would think for people to simply, “back out” of a sale due to buyers remorse.
My bedt advice for a seller to avoid buyer’s remorse, is to as best as you can vet your buyers. Try to accept offers from those who seem confident and enthusiastic about purchasing your home. One way of doing this is by the amount of the escrow deposit they offer. If they are offering less than 1% of the sales price as escrow, request a higher amount to ensure they are “bought in” and more obligated to carry through to closing.
5. Buyer Must Sell Their Home First
It is very common for a buyer to make an offer to purchase your home, with the contingency that they must sell their home first. In these situations, the buyer needs the equity out of their own home sell in order to afford to purchase your home.
This is especially risky to the Seller, because, once you have accepted the buyer’s terms and gone into contract, your house essentially comes off the market to other potential buyers. If the buyer’s house sale falls through for any reason, this will delay the closing of your home for that much longer.
There are a couple of easy ways to avoid this. The first, and most simple is to not accept offers form buyers who require a contingency to sale their home first. Focus only on those buyers who are ready to purchase your home now.
The second way to avoid this situation is, if you have a buyer that does need to sale their home first, and you accept their terms, be sure to add a “kick out clause” addendum to the contract. The “kick out clause” gives you, the seller, the option of accepting a more qualified and ready buyer would one come along. You then tell the original buyer, they have “X” amount of time to either sale their home, release their original contingency for their home sale, or their contract is null and void. This allows you to go into contract with a buyer who is ready and willing to close on a specific date.
Talk to your licensed Realtor about these things before putting your home on the market to avoid those last minute surprises that could kill the deal and put you back at square one when selling.