It happens more often than you might think. A house sells, but before the closing, it falls through. Rumors start by people that assume something is wrong with the home. They also might whisper that there’s something wrong with the seller – they were just demanding too much. But these reasons are often the furthest thing from the truth.
Just because a sale is pending, doesn’t mean it’s a for sure thing. The sale could fall through for a variety of reasons. Keep reading to learn the most common reasons home sales don’t happen.
Financing Falls Through
Even if a buyer has a preapproval from a lender, there are plenty of ways the financing can fall apart. The preapproval is based on the information provided at the time of application and is based on a variety of conditions. If the buyer can’t satisfy those conditions, the financing might not get approved.
A few of the reasons financing falls through include:
- The home doesn’t appraise for enough money
- The borrower took out other loans or overspent on credit cards after the pre-approval
- The lender can’t verify the borrower’s employment
- The borrower’s credit score falls
Financing isn’t a sure thing until the borrower gets to the closing table with a ‘clear to close’ from the lender. Until that point, borrowers need to make sure everything reported on their loan application stays status quo.
The Appraised Value Isn’t High Enough
Sometimes sellers ask a price that is just too high for a home. Without knowing any better, willing buyers bid the full amount. But it doesn’t matter how willing a buyer is to pay the full amount for a home, if they need financing, the house must appraise for at least the sales price.
If the appraiser decides the market value of the home is less than the agreed-upon sales price the buyer and seller have a few options:
- Renegotiate the sales price to a price that meets the appraised value
- The buyer can pay the difference between the appraised value and sales price in cash (not recommended)
- Back out of the contract
The Buyer Can’t Sell Their Current Home
If the buyer currently owns a home, they may have a contingency in the contract to sell it before they close on the new home. Because sellers can’t give buyers forever to sell their home, there has to be a deadline. If that deadline approaches and the home isn’t sold, the buyer may back out of the purchase contract, leaving the home active in the market yet again.
Even if a buyer doesn’t have a housing contingency in the contract, they can still back out of the sale if their home doesn’t sell. The difference is they will lose their earnest money if they didn’t have a clause in the contract that gave them an ‘out’ if their home didn’t sell in time.
The Inspection Report Shows Issues
Most buyers will pay for a professional inspection of the property to ensure that the home is safe and sound. If the inspection report comes back showing that the house has issues, the buyer has the right to back out of the sale. Just like with a low appraised value, the buyer and seller have a few choices:
- Renegotiate the contract to account for the issues in the home with a lower sales price
- The seller can offer to fix the issues prior to closing on the home
- The seller can offer a seller’s credit to pay for the issues without fixing them (assuming the lender is okay with it)
- The buyer can back out of the sale
If the buyer has an inspection contingency on the home, he/she won’t lose the earnest money deposit paid as long as the inspection is done within the specified period. If there isn’t an inspection contingency, the buyer may lose the earnest money deposit, but that could be a much smaller loss than would occur if he/she bought a house with serious issues.
Selling a home is a delicate process. Everything has to fall into place in order for it to be successful. One wrong turn and the contract could suddenly be null and void. Making sure that you cover all of your bases is important. You can do this by using a licensed real estate agent and real estate attorney to represent you in the sale of your home. This way you’ll have a better idea of a fair price to sell the home for, know what contingencies to accept, and what you need to do to minimize the risk of a sale falling through on your home.Click to See the Latest Mortgage Rates»