Why do home sales fall through? Why is it that sometimes, the buyer or the seller walk away from a home sale, causing it to fall apart and for the home to return to the market?  

Let’s rewind: You’ve put your home on the market and have been doing everything to prepare your home for upcoming showings. An offer (or even multiple offers) comes in and you accept it. Both parties sign a real estate purchase contract and hope everything goes as planned. You’re definitely a step closer to a closed sale.

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But then, life throws a curveball — an issue comes up that turns out to be a major deal-breaker, causing the sale to fall through. Here are some examples:

An inspection could reveal serious flaws affecting the home sale. If major defects, like structural issues, wet basements, leaky roofs, high radon levels, or mold were discovered in the home, it could be a major deal-breaker for the buyer.

These issues could cause the buyer to panic and open further negotiation on the price, or they could ask for a credit or relief from the seller as compensation. If the buyer included a home inspection contingency in their offer, it also allows them to renegotiate the price or walk away due to those issues.

The seller, in return, has three options: 1.) They can fix the problems by hiring contractors; 2.) They can credit  the buyer so they can make the fixes themselves; or, 3.) They can reduce the selling price of the property.

The problem comes if the seller refuses to do any of these. The buyer can then cancel the home sale and simply walk away, although they may lose the earnest deposit they made when signing the contract.

How to prevent this: 

Sellers should never underestimate the power of a home inspection. Especially for older homes, they should hire a home inspector prior to placing their house on the market. The “pre-listing inspection” will help them address any issues the house may have and give them time to fix them. Once you put your property on the market, and potential buyers order an inspection, you will know what to expect and be able to negotiate more easily. 

There are cases where a buyer puts in an offer with the condition that they need to sell their current home before they can purchase a new one. They may include it as a home sale contingency, which makes the contract contingent upon the success of selling their own home within a specific time frame. Not all people can afford to handle two mortgage payments at once. The contingent offer will give them a set number of days to sell their current home.

However, if for any reason, their home doesn’t sell within the timeframe, it could cause delays with your home sale or cause it to fall apart. You may be left searching for another buyer or having to proceed with a backup offer and begin a new transaction all over again.

How to prevent this: 

Home sale contingencies can be very risky for you as a seller as it can cause the home sale to fall apart. You can avoid this by prioritizing buyers who don’t need to rely on the sale of their current home to proceed with the transaction. If possible, reject an offer with a home sale contingency and choose another buyer who loves your home and doesn’t need a contingency in order to make the purchase.

Your buyer has been pre-approved; you’ve agreed on a final purchase price; you’ve both signed the contract. So far, everything is going great—until the buyer just gets rejected for a mortgage.

Keep in mind that a mortgage is not guaranteed until the buyer has signed a final agreement with the lender. While waiting for the mortgage to close, buyers should avoid making significant financial changes, such as taking out a new loan for a car, changing or losing a job, etc. These changes could affect their debt-to-income ratio, which may make them ineligible for the mortgage loan for which they originally applied. Once the buyer’s financing falls through, the pending home sale will go back to active and the transaction falls out of escrow.

How to prevent this: 

To ensure that the sale won’t experience any hurdles related to the buyer’s financing, it’s best to accept offers from buyers who already have a mortgage pre-approval. If they are pre-approved, they are less likely to be rejected for a mortgage loan. This means they can get the financing they need to close on the home.

With the help of your listing agent, you can request that buyers be pre-approved and only enter into a contract with a serious and qualified buyer. The only exception is when the buyer wants to make a cash purchase. In this case, there won’t be any financing contingency to deal with.

Buyers who apply for a mortgage will be asked by their lender to pay for an appraisal of the property. Unfortunately, sometimes the home appraisal comes in at less than the asking price. This can be a huge deal breaker to buyers because banks will only lend them the appraised value of the home, and not all buyers can afford to pay the difference. This situation is common in a seller’s market where there’s limited housing inventory and the rampant bidding wars cause prices to go beyond the normal home value.

If this situation occurs, the buyer and seller have a few options. The buyer can order another appraisal from a new professional. If not, they will have to pay the difference in cash. However, not all buyers have the extra amount to bring to the table. They may also ask the seller to reduce the sale price so it’s more in line with the appraisal. Sellers need to be prepared for this negotiation.  The seller can attempt to justify their own appraisal, with comparables in the area, to prove their higher asking price.

However, if both parties cannot reach an agreeable solution, the buyer can walk away, and the pending sale will most likely fall through.

How to prevent this:

To avoid this situation, it’s best to list your home with a fair and accurate asking price. Consult with your real estate agent so you can come up with an asking price based on comparable home sales in your neighborhood. 

Buyer’s remorse or “cold feet” is real. It’s when the buyer backs out of a deal at the last minute after they realize that they don’t want to buy the home. It happens to both first-time and repeat buyers. After all, buying a home is a huge financial decision and is far from simple.

Once a buyer places an offer, he or she is legally bound. However, buyers can get scared or overwhelmed with the difficulties of the process. Once they realize they don’t want to continue with their purchase, they will do anything they can to get out of it, whether it be contingencies stated in their offer or loopholes in the contract. 

When this happens, the seller is left in a bad position. This is why the earnest deposit is important. This deposit, which is typically 1 percent of the home’s final sale price, is made when the buyer signs the purchase contract. It serves as protection for the seller in case the buyer changes their mind. If the buyer chooses to walk away from the deal due to a change of heart, they will lose their deposit money to the seller.

However, it’s still a heart-breaking situation for the seller because they now need to put their home back on the market and start from scratch.

How to prevent this: 

While this issue depends entirely on the buyer and there isn’t much you can do as the seller, there are ways you can avoid it. With the help of your agent, make sure that there are no undisclosed points in the contract that a buyer can use to make their offer null and void. Also, in the case of multiple offers, favor a buyer whose offer has fewer contingencies and is confident enough to proceed with the purchase.

For buyers, especially first-time home buyers, get the help of an experienced real estate agent who can walk you through the real estate process and eliminate any misconceptions you have about buying a home. Realtors can also provide counseling if they notice any signs of cold feet from their client.

Of course, there are other reasons a home sale could fall through that are out of the seller’s control. Regardless, it can be very frustrating and time-consuming when you have to start from square one and put your house back on the market. Whether you are the seller or the buyer, it’s important to know and understand these deal-breakers so you can actively prepare and attempt to avoid them as much as possible.

As a homeowner, there’s an f-word that is avoided as much as possible. Even though we don’t want to say it we have to talk about it. Why? Because like most problems, that’s how it’s handled. So say it with us, foreclosure.

Most of the time, when people find out that their dream house is facing foreclosure, their world stops. No one buys a house and puts in all the effort into making it a home only to one day realize that it will be taken away from them. Getting a Notice of Foreclosure is something that people dread, and even ignore in the hopes that the problem will go away.

Notice Of Intent to Foreclose: Know Your Options

Ignoring Your Foreclosure Notice

What happens if you don’t respond to the notice of intent for foreclosure?

When you receive a notice of foreclosure, the best thing to do is take charge. Getting a notice of foreclosure doesn’t mean that the world has stopped because there are many options for you!

Even when you get the notice, you can still avoid having foreclosure and bankruptcy on your record. So, to answer the question, ignoring your foreclosure notice will only limit your options and ultimately lead to losing your home.

If you’re reading this, and you still haven’t received a notice of foreclosure—in which case you’re at the stage of dreading it—what can you do?

Foreclosure Avoidance Plan

Banks offer Foreclosure Avoidance Plans for those who want to be extra-sure about their home loans.

Always consult with your lender about this first. It will seem like a fair deal, but don’t forget that this is actually an additional loan. So now, you’re paying for your mortgage and an additional foreclosure plan.

If this is something you can handle, then by all means, go for it!  If you’d rather work on your primary loan before adding another one into the equation, it’s also okay not to enter into a foreclosure plan.

Filing for Bankruptcy

 What if you just totally forget the foreclosure of your house, and file for bankruptcy instead?

The good news is, yes, you can do that. Your foreclosure will be curbed if you do this. What happens when you file for bankruptcy is that your lender will not be able to collect the debt from you. The bad news is, courts cannot discharge secured debts that include mortgage payments.

What happens here is that since you are filing for bankruptcy, you don’t have to pay for your mortgages yet.  However, as soon as your bankruptcy process is complete, your lenders will definitely be back for your debt.

In cases like this, homeowners usually struggle with paying for their mortgages after filing in the courts. The worst part is that, most times, these homeowners end up with not just a bankruptcy but also a foreclosure on their record.

Your Financial Status

Let’s say you don’t go with bankruptcy and are looking at simply foreclosing your home. How does this affect your financial status?

Your foreclosure report will be on your record for seven years.  Not only that, after those seven years, you may also have to write a report to three major credit agencies to have the foreclosure removed from your record.

Although lenders have been more lenient over recent years, those who are approved for new loans, and even credit lines, have to pay higher interest rates. You can’t really blame them, though. They see those who have a record of foreclosure, with or without bankruptcy, as more of a liability than those who have a clean record.

You’re Not Alone

Yes, getting a Foreclosure Notice is something you might have never thought would happen to you. It has been found that this has actually become more common recently.

A 2013 study found that over 4.1 million foreclosures were completed in the United States during September 2008-December 2012. This is quite a big number and does not even include those who avoided foreclosure through some of the methods mentioned above, those who opted to sell their homes, or those who found ways to work things out with their lenders.