It is so disappointing to think you have your home sold only to have the buyer back out, but it does happen. The good news is that it is not such a bad thing in today’s market, as chances are you have several buyers waiting in the wings to buy your home, and you may even end up selling for a higher price the second time around.
Here are the top five reasons why home sales fall through.
1. BUYER’S REMORSE
With multiple offers on many homes, buyers are losing out time after time and having to put in so many offers just to get one accepted. My husband’s co-worker had 16 rejections before he finally got his offer accepted on the 17th home.
With such low inventory and multiple offers, buyers are having to go all out to compete, especially with cash buyers. They don’t even have time to think about it; they must be ready to see the home the first day it’s on the market and put an offer in right away. This market creates a panic and a sense of urgency for the buyer, especially if they have had offers rejected. They go all out on the next home and are delighted when their offer is accepted, and they are finally under contract.
But once the excitement subsides, they have time to go over exactly what they offered and look at the home in more detail. Is it really a great home for them? Did they offer too much over the asking price? Is it in as great a condition as they had first thought? Do they love this home, or did they settle?
After thinking it over, the buyer realizes they really don’t want this home after all and want to cancel the contract. As they will be in the inspection period, which is typically 10 days, they can cancel and get their earnest money back.
2. INSPECTION
When the offer and any counters are signed by everyone, you are now under contract and the time frame begins. The day after a fully executed contract is day one and the buyer has 10 days (unless changed in the contract) to complete all their inspections and due diligence, even if they are purchasing As Is and not asking the seller for any repairs. This is usually when buyers will back out as they can cancel for any reason at any time during those 10 days and get their earnest money back.
If the inspection finds a lot of things wrong with the house the buyer can cancel the contract or ask the seller to make the repairs. If the seller does not agree to make the repairs, the buyer can cancel at that time and get their earnest money back or move forward without the repairs being done.
3. THE HOME DOES NOT APPRAISE
Appraisals have always been one something everyone dreads as you are literally putting the success of closing in the hands of the appraiser, and in a seller’s market it is even harder to get homes to appraise.
We are seeing a lot of appraisal waivers, either full appraisal waivers where it doesn’t matter what the appraised value is as the buyer agrees to pay the difference, or appraisal waivers with caps — the buyer will waive the appraisal up to a specified amount. So, if the appraisal comes in no less than that amount under the contract purchase price, the buyer will pay the difference.
If the appraisal comes in lower than the specified amount or if there is no appraisal waiver, then this becomes another negotiation between the buyer and the seller. If the buyer and seller cannot agree on a price, then the contract is cancelled, and the buyer receives their earnest money back.
4. BUYER’S CONTINGENCY FALLS THROUGH
A buyer’s contingency is when the buyer must sell their current home in order to purchase the new one. The buyer may need the proceeds from that sale for the down payment or closing costs of the new purchase, or they may not qualify for both mortgages at the same time.
If the sale of their home falls through at any time, the contract on the new home is cancelled and the buyer will receive their earnest money back unless the buyer is able to remove the contingency and purchase the home without having to close on their other home first.
5. THE BUYER NO LONGER QUALIFIES FOR A LOAN
When a buyer submits an offer, they will include a prequalification from their lender stating they have been
pre-approved for at least the loan amount. Even if they
have been pre-approved, there is no guarantee until the
home closes that the buyer will receive the loan.
Luckily, this does not happen very often, but it does happen. There are situations where the buyer no longer qualifies for the loan and the contract is immediately cancelled, such as loss of job, health issues, reduced credit score before closing, or buyer separation from spouse.
Remember, a cancelled sale is not always a negative, especially in today’s market, and sometimes you want a buyer to cancel as you have a better offer waiting to take their place. When issues arise, talk to your agent on what is the best way for you to handle it. Depending on the situation, you may want to try to keep the deal together and work with the buyer, or it may be better to let this buyer cancel and move forward with another buyer, or put your home back on the market.
If you would like more information on cancelling a contract or have any questions on buying or selling a home, please don’t hesitate to contact me.
Lorraine is a Multi-Million Dollar producing agent, has beena full-time Realtor for over 13 years, is an Associate Broker of KOR Properties, a Certified Negotiation Specialist, and is on the Professional Standards Board. You can reach Lorraine at (602) 571-6799.