TOP REASONS WHY HOUSES FALL OUT OF CONTRACT DURING A SALE
Here’s why buyers may back out of a contract on a house, and how real estate agents can help buyers and sellers be better prepared for a smoother closing.
1. The inspector finds items that need to be repaired
After an offer is accepted, a buyer typically has seven days to work with a professional to conduct an inspection. Based on the findings, they may ask for certain items to be fixed prior to the sale or for the seller to reduce the price to cover the cost of making repairs.
Common items an inspector may flag are issues with grout or tile, tears in the carpet, or countertops that need to be resealed. Home inspectors also look at roofing, cooling and heating systems, as well as the electrical and plumbing of the house.
An experienced real estate professional can offer sellers guidance on the particular requirements and common practices of their state, which may include getting an appraisal before listing a home so issues can be fixed up front or sellers can be prepared to offer concessions in the contract.
2. The home is appraised for less than the offer price
After the inspection, many contracts require a property appraisal. Most lenders won’t finance a home for more than the appraised value. If the appraisal comes in short, either a seller will have to agree to a lower sales price or a buyer will have to pay for the difference in cash. It’s common for contracts to have an addendum that allows a buyer to back out of the deal if the appraisal comes in short and a new agreement can’t be made.
Occasionally, a seller may be able to contest an appraisal if an agent is able to show comparable properties that sold for a higher price or show the home received multiple offer letters at or above the asking price. Ultimately it will be up to the appraiser if they feel the need to adjust their original valuation.
3. The buyer’s financing falls through before the home can close
After the inspection and appraisal, both parties can feel a bit more optimistic that the contract will close successfully. At this point the buyer should have enough information about the home to feel confident in – and excited for – their purchase. There also are fewer options that allow them to back out without losing their earnest money, which can reassure sellers the buyer is serious about the deal.
But there’s one more complication agents have commonly seen derail a contract, even just days before closing: When a buyer’s financing falls through.
Failure to pay taxes aside, a job loss, a need to get an updated credit score [called a “gap credit report”] shortly before closing, so buyers should think carefully before purchasing new furniture on a credit card or buying a new car, as it could change their score and potentially impact their ability to qualify for the loan they applied for or may impact the terms.
Falling out of contract can be inconvenient for buyers and sellers alike, but it’s not the end of the world. With some extra patience, the right buyer will come along.