Nothing is more disappointing than thinking your home sale is a done deal, only to have it crumble in the final stages of the process. A closing may fall through for many reasons, including title-insurance surprises, buyer financing rejections, inspection failures, and lowball appraisals. Even buyer’s remorse can sour a deal.
Luckily, buyers and sellers who are aware of the more common deal breakers can prepare early to either avoid major issues or work around them. Once a buyer and seller agree on the general purchase terms such as price and timing, they still need to settle a slew of details and confirm key stipulations.
The truth is, almost anything can happen in escrow. Here are the five reasons most home sales fall apart.
1. Buyer financing woes
During the housing market boom, buyers rarely struggled with getting loans, and sellers didn’t have to worry as much about a home sale falling through because of buyer financing. But today, buyer financing trouble is among the biggest sale killers. It’s important to brace for this setback in several ways.
First, look for buyers who are preapproved for a loan. Although they can still get rejected in the mortgage approval process, preapproved buyers are more likely to land a loan than those without the initial credit screening. You can also favor cash-only buyers who don’t need financing, but beware that cash buyers often demand a lower price.
Second, check in with agents while the approvals process is underway to ensure the loan is on track. That way, you’re aware of financing concerns well before settlement. Finally, sellers who are really intent on closing the deal can work with the borrower to agree on a more affordable contract price within their financing means.
2. Low appraisals
Appraisals lower than the contract price can cause a deal to fall through. A buyer’s lender will only lend up to the value of the property, so if the home value appraises lower than the agreed amount, the buyer cannot secure the full mortgage.
If buyers can’t pony up the difference from their savings, a lower-than-expected appraisal can be a deal breaker. In these cases, sellers must be ready to negotiate and be willing to lower their price if they want to close immediately. Or sellers can suggest that the buyer secure a second appraisal, which could be higher and help the buyer qualify for the full mortgage. Sellers can also help the buyer supply the appraiser with evidence of comparable home sales in the area to make the case for a higher value.
3. Plan for title insurance and home inspection surprises
The purpose of title insurance is to ensure the owner’s home is fully theirs to sell. Lenders require title insurance to protect the asset — the home — that secures the loan. If a homeowner defaults on the loan and a faulty title reveals that the home is not actually theirs, the bank has no way of recouping the money it lent.
To stave off any surprise loan issues, don’t wait for the buyer’s title report. Get your own report in advance to make sure the property is fully in your possession with no threat of claims.
The same goes for home inspections. Many home sales fail to make it to closing if the buyer’s inspection reveals serious physical faults with the property. If possible, sellers should be aware in advance — before the buyer’s inspection — of any significant flaws in their home that would jeopardize a closing.
4. Watch for signs of buyer’s remorse
For buyers, the entire home purchase process can be very emotional. They’re investing a substantial amount of money in what they hope is their dream home. They have to live with the house and the community every day. And sometimes they just get cold feet. Unfortunately, there is little sellers can do to eliminate buyer’s remorse, but they can be on guard for buyers who seem especially anxious or hesitant about negotiating a deal. When you have the option, favor more enthusiastic, confident buyers.
5. Don’t hinge a deal on the buyer’s home sale
Many buyers need the equity in their current home to purchase a new one, and if your buyer’s home sale falls through, your home sale could fall through too. However, avoiding this pitfall is easy: Don’t allow the sale of a buyer’s home as a contract contingency. Instead, target buyers who have already sold their home, or who aren’t relying on the equity in their current home to help finance yours.