The top reasons why a pending home sale might fail to close
Between when a seller accepts a home offer and when the sale closes, a lot can happen. In some cases, the sale even falls through and both parties have to start over again. This doesn’t happen a lot, but it happens enough that both buyers and sellers should know the reasons ahead of time. According to the National Association of Realtors, as many as 6% of contracts fell through in the three months before this survey they recently published.
This article explores the different reasons a home sale may fall through and will show you what you can do to help make sure it doesn’t happen.
Talk to a Flyhomes agent before listing your home so we can help you with the best strategy and ensure you’re finding the right offers.
A look at what threatens a home sale:
- Financing – Buyers usually make an offer before they officially secure a mortgage. If they can’t get a loan underwritten in time, the sale will crumble.
- Contingencies – If someone can’t meet one of the terms in the purchase agreement, the contract is void.
- Messy title – Sometimes homes don’t have a clean title and it turns out the property isn’t the seller’s to actually sell.
- Inspections – If the buyer adds an inspection contingency and finds serious issues, they could back out.
- Appraisals – A gap between how much the buyer offers to pay and how much the home is worth leaves the buyer with a big sum to cover.
How a home offer works
- The seller collects offers for their home and chooses the one that seems most certain to close at the best price. Many homes receive more than one offer so the seller has to choose which one they believe is the safest choice.
- Buyers and sellers will usually negotiate the terms of the offer. A seller may like most of the terms of an offer but may ask the buyer to change something to make the offer a home run.
- The seller will then accept the offer, turning it into a pending sale.
- The sale moves to a pending period. This is when everyone addresses contingencies.
- Both parties will also begin to work toward closing by transferring money into escrow and signing important closing documents. This process usually takes about 60 days.
- The buyer and the seller sign the final closing documents and the buyer takes ownership of the property.
Let’s take a closer look at the closing period to understand the reasons a home sale could fall through.
Pending means that the sale is still waiting to close. A pending sale is one that includes contingencies on the part of the buyer. Some common contingencies include:
- Inspection contingency: The buyer can order an inspection to see if there’s any major issues. They can request repairs that the seller can either agree to, reject, or adjust the price accordingly.
- Financing (or mortgage) contingency: A buyer can make an offer on a home before they’ve secured financing. A financing contingency says that the buyer can back out of the sale if they’re unable to secure a mortgage.
- Appraisal contingency: This ensures the appraised value of the house doesn’t fall short of the sale price.
- Home sale contingency: Often, a buyer isn’t able to buy a home unless they sell their current home. This contingency says that the buyer will sell their home before closing on yours.
6 common reasons a sale falls through
The inspection reveals unexpected issues
An inspection ensures that buyers are aware of any issues with the home. In some states, the seller is required to complete a disclosure that reveals any known issues about the home.
The problem is that there are some issues that many sellers wouldn’t be aware of in the course of their everyday lives unless something breaks. Foundation issues, hidden mold, and pest problems are a few of the common things that an inspection may turn up that sellers genuinely weren’t aware of.
If the inspection turns up necessary repairs, the buyer can request that the seller address the issues, negotiate a lower price, or back out of the sale altogether.
The financing falls through
Accepting the offer from a pre-approved buyer can reduce the chances that this will be the reason a sale falls through, but it’s still not a guarantee. If a buyer can’t secure a mortgage, the sale could fall through.
The appraisal comes back low
An appraisal gap is when the home appraises for lower than the proposed sale price. A mortgage company won’t lend more than what a house is worth, so the buyer would have to cover the appraisal gap themselves. If they can’t, an appraisal contingency allows them to cancel the sale.
The buyer can’t sell their home
Often, a buyer can’t buy a home unless they sell theirs. That’s where the home sale contingency comes into play — and could cause a sale to fall through. If the buyer can’t sell their home during the closing period they won’t be able to buy yours.
Title issues surface
The buyer’s lender requires a clean title. They will do research on the home’s title to make sure there aren’t any judgments or liens against the property. Judgements or liens mean that there is a debt on the property and someone else—a spouse, heir, or even the IRS—has a right to the property. It can take time and legal action to sort this out. Rather than waiting until the title is clear, a buyer may walk away and seek another property.
The seller doesn’t offer concessions
During negotiations or after the inspection, the buyer may ask the seller to make certain concessions. Concessions are incentives that the seller offers to the buyer that could include paying some of the buyer’s closing costs, repairing issues found during the inspection, replacing appliances, or including non-realty items such as a children’s play set or potted plants. If the seller doesn’t agree to the buyer’s demands, they may have the option to cancel the sale.
Making sure the sale goes forward
You can ensure that the sale goes smoothly by avoiding common mistakes. But even the most prepared seller can encounter unexpected issues. Here are a few things you can do to help secure the sale:
Order a pre-listing inspection
If you pay for an inspection before listing the property, you’ll have a better idea of any issues your house has and can decide whether or not to fix them before listing the home. You can also make potential buyers aware of the issues and come to negotiations with what you’re prepared to fix and what you’re not. The buyer may still do their own inspection, but you probably won’t be caught off guard by what they find.
Have the home appraised
If you have your house appraised, you’ll know what it’s worth and can price it accordingly. You may still get offers above the appraised price, which means the buyer would have to cover the appraisal gap, but you won’t be taking the chance that the appraisal will be a surprise after you’ve accepted an offer.
Choose an offer with fewer contingencies
The more contingencies an offer includes, the more chances the sale has to fall through. In a seller’s market, many buyers waive contingencies so their offer is more favorable. The sale will likely go more smoothly if you choose an offer with fewer contingencies. That way, you won’t have to wait for an inspection or for financing to come through, for example.
What to do if a home sale falls through
While the majority of home sales go through without any major issues, there is always a chance that something will go wrong. If you understand why a home sale might fall through, you can take steps to secure the sale can help the process go smoothly.
If the home sale falls through as a result of an unmet contingency, you can relist your property and hope for better luck the next time. If the contingencies are met and the buyer still backs out, you may end up with their earnest money deposit, and can still relist the property.
If the buyer breaches the contract, suing them is also an option. But if a buyer backs out of the sale for any reason not covered by a contingency, the seller will get the buyer’s earnest money so suing them may not be necessary.
About the author: Stephanie Mickelson is a freelance writer based in Northwest Wisconsin who specializes in real estate, building materials, and design. When she’s not writing, she can be found juggling kids and coffee.