Most Common Reasons Real Estate Contracts Fall Through

One of a Realtors’ main job is to keep things smooth and easy for their clients, while behind the scenes is navigating the process so they can focus on their move. The truth is, there are many hurdles to clear before the real estate transaction is actually complete. Below are the most common reasons real estate contracts fall through after the buyer and seller agree on the initial terms.

Inspection

Home inspections are the number one reason a contract can fall through. If there are repairs needed that come up on inspection, and the buyers and sellers cannot find common ground, the contract will be nullified. A buyer can walk away if they feel there are just too many problems with the home despite having already paid for the inspection. Sellers don’t have to agree to do any repairs or provide concessions for repairs either. The two sides have to come together in a specified timeframe or the transaction will not move forward.

Appraisal

Another common reason that a contract won’t get to closing is the appraisal. If the appraised value comes in lower than the sales price, and the buyer and/or seller cannot find a remedy or get the appraiser to recalculate their findings, the contract may be cancelled for several reasons. If the lender has agreed to provide a loan based on a certain down payment and loan to value ratio, the buyer’s lender will require that the sales price will be reduced to match the appraisal or that the buyer may need to make a larger down payment to offset the appraisal value. If the buyers and sellers can’t agree on a lender-approved option, the contract will fall through.

Hidden Challenges

Sometimes a transaction falls through due to something that was not immediately apparent  – an unexpected lien on the property, an old collection situation that the buyer thought was resolved, or even additional people on the title to the property who were not included in the transaction (which are problems that may occur when there has been a divorce or with inherited properties).

Contingencies

There are several contingencies that can be on a real estate sales contract. Most contingencies are related to financing. For example, buyers may need to sell their home before they can purchase a new home. Mortgage lenders also require buyers to meet all of the conditions of their pre-approval, such as not increasing their debt to income ratio, or changing jobs and potentially their income. If any of these contingencies aren’t met, the contract will not go through.

The next time you go under contract, try not to celebrate prematurely. Understand that nothing is final until the ink dries on those closing documents. Take care of the circumstances you have control over, and wait with bated breath to hear that everything else has gone smoothly.