6 Reasons Your Real Estate Deal Might Fall Through

Even after agreeing on a price and signing a contract with the buyer, real estate transactions can still collapse. In fact, data from the National Association of Realtors highlights that in the last quarter of 2022, about 5% of contracts were terminated, while another 15% were delayed. A separate Redfin report found that approximately 60,000 home purchase agreements fell through in June 2022, representing 14.9% of all homes under contract that month. This marked a record high in failed deals, with the exception of the unusual market disruptions in March and April 2020 due to the pandemic.

Why do real estate deals fall through?

There are various reasons why a home sale might fall apart, from financial hurdles to issues uncovered during a home inspection. That’s why if you come across a home you love and it is already under contract, consider making a back-up offer. Below are six common reasons why a sale might not make it to closing:

1. Financing Problems

A buyer may come to the table with mortgage pre-approval, but that doesn’t guarantee final loan approval. Several factors can shift between obtaining pre-approval and the start of underwriting, potentially jeopardizing financing.

For example, any significant life changes, like a job loss or major purchases that increase a buyer’s debt load—such as buying a car—can affect their ability to secure a mortgage. Even something as small as missing a bill payment could lower their credit score, disrupting the financing process. Additionally, with rising interest rates, mortgage payments can quickly become unaffordable, pushing the home out of the buyer’s financial reach. This can cause them to reconsider or back out entirely.

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2. Unmet Contingencies

Home purchase agreements frequently include contingencies, which are specific conditions that must be satisfied to finalize the sale. Common contingencies include the buyer’s need to sell their current home or their ability to secure financing. Inspection-related contingencies are also typical, giving the buyer the option to withdraw if a major or costly issue is discovered during the inspection process.

Buyers are often allowed to cancel their offer without penalty during a set contingency period, which typically lasts from several days to as long as 17 days. This period is agreed upon during the initial offer and acceptance phase, meaning both the buyer and seller understand and agree to these conditions before moving forward.

3. Inspection Issues

Home inspections can be another deal-breaker. Many real estate contracts include clauses that permit a buyer to back out of the deal if substantial or expensive problems arise during the inspection. While buyers may agree to overlook cosmetic flaws, they typically expect to be informed about structural or safety concerns, such as foundation cracks or mold infestations.

After the home inspection, buyers often request repairs or ask for a financial credit to cover the cost of those repairs. However, sellers aren’t always willing to comply with these demands. If the two parties can’t reach an agreement on repair issues, buyers often retain the right to terminate the contract without penalty.

4. Low Appraisal

When a buyer is financing a home purchase with a mortgage, the lender typically requires an appraisal to ensure the property’s value aligns with the agreed-upon purchase price. If the home appraises for less than the purchase price, it can create an “appraisal gap” that might jeopardize the deal.

In such cases, the buyer has a few options: they could pay the difference in cash, attempt to renegotiate the price with the seller to match the appraised value, or cancel the deal entirely—assuming an appraisal contingency was included in the contract. This contingency allows buyers to back out without penalty if the home doesn’t appraise for the expected amount.

5. Title Complications

A title search is a critical part of any real estate transaction. It uncovers who legally owns the property and whether there are any claims against it, such as liens or unpaid debts. If the title search reveals unresolved issues, like outstanding liens, unpaid property taxes, or unsettled work by a contractor, it can derail the sale.

A preliminary title report is typically issued to ensure the title is free of such complications. If any issues arise, the buyer and seller must agree on how to address them. If they can’t reach a solution, the buyer often has the right to walk away from the deal within a certain time frame, as outlined in the contract. Title insurance is recommended to ensure you will be covered if an issue should arise in the future.

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6. Cold Feet

Sometimes a real estate deal falls through because someone simply has a change of heart. A buyer might suddenly feel the house is too close to a busy road, or that it’s located too far from work or in a less-than-ideal school district. On the other hand, a seller could realize they can’t afford the higher interest rates on their next mortgage or become too sentimental about leaving their home. In such situations, depending on how the contract and contingencies are written, walking away could have financial or legal repercussions. Cold feet, while common, can still disrupt a sale, especially if no legal provisions exist to cover last-minute withdrawals.

Warning Signs That a Deal May Be Falling Apart

While going through the closing process, it’s important to watch out for potential red flags that could suggest your deal is in jeopardy. Here are a few signs that a transaction might be at risk:

  • Missed Deadlines: If either party starts missing key deadlines, such as reviewing disclosures or signing necessary documents, it might indicate second thoughts.
  • Slow Responses: When communication becomes infrequent, especially from an agent, it could be a signal that someone is losing interest or reconsidering their decision.
  • Requests for More Time: If a buyer suddenly asks for an extension on the closing date, it could be a sign they’re facing financial difficulties or need more time to secure funding.
  • Frequent Contract Changes: Constant revisions to previously agreed-upon terms might suggest one of the parties is no longer fully committed to the deal.

These signs can serve as early indicators that a deal might be unraveling, allowing both buyers and sellers to address concerns before it’s too late.

Conclusion

While real estate transactions can be complex, understanding the common reasons deals fall through can help both buyers and sellers better navigate the process. Whether it’s financing issues, unmet contingencies, or even cold feet, being aware of potential pitfalls allows for better preparation and communication. By recognizing warning signs early and addressing them proactively, both parties can increase the likelihood of a successful closing, ensuring a smoother real estate experience.