Real estate deals rarely close without a hitch. Contrary to popular belief, the deal isn’t done once you find a willing buyer. There are many other hurdles to get over in the real estate sales process besides marketing your home and securing an offer.
Contingencies are conditions that need to be met before closing can go ahead. Contingencies can protect both the buyer and the seller and are common in most real estate transactions. However, if a contingency is not met, it often leads to another round of negotiations.
Although it’s unusual for a real estate deal to fall apart entirely, it’s common for sellers to have to return to the negotiating table at some point. It’s also extremely common to extend closing dates. Keep reading to learn more about the top five reasons why real estate deals fall through and what you should do if it happens during your sale.
A home inspection contingency is a common contingency that’s included in the majority of real estate deals. A home inspection allows the buyer to thoroughly inspect the property before they buy it. After inspecting, they can determine if there are any significant defects or repairs needed. Once the inspection is complete, the buyer has a certain amount of time to decide whether they want to move forward with the sales purchase. If the buyer decides to move forward, regardless of any material defaults the home may have, they often request a credit to cover the repairs. This is where some deals can fall apart, so it’s important to discuss your options with your real estate agent before you decide how to move forward.
A home appraisal contingency protects the buyer from paying more for a home than it’s worth. If a home appraises for less than the agreed sales price, the lender can refuse to loan the full amount. For the deal to close, it’s necessary for someone to pay more money out of pocket to bridge the gap. Depending on how significant the difference is between the appraisal value and the sale price, you’ll typically have to split the difference with the buyer.
Open liens on a property are a huge issue for future buyers. Your title company often uncovers open liens when they run a title search. This is not a big issue if your title insurance policy covers the lien. However, if your title insurance doesn’t vcover open clients, they must be resolved before closing. If you don’t pay outstanding liens, your buyer could back out of the deal and have their escrow returned.
Title defects are issues with a property’s title that can inhibit your right to sell your property. If your home has a publicly-recorded issue, such as a lien, mortgage default, or judgment that gives another party claim to your property, you’ll have to resolve this before you transfer the title.
Unless your buyer is purchasing all cash, they’ll likely have a lender helping them to finance the deal. Buyers financing is often the most common reason why a real estate deal falls through, typically during the underwriting process. Underwriting is how the mortgage lender assesses the risk of lending money to the buyer. If your buyer makes a significant credit purchase during the lending process their financing may fall through. This is because their debt-to-income ratio could increase. In this instance, there’s little you can do other than put your home back on the market and find another buyer.
Fortunately, an experienced real estate agent can help you navigate any issues that might arise during the real estate transaction.