Sure, finally getting a sales contract signed and seeing your property shift from for sale to pending is quite an accomplishment. However, I wouldn’t celebrate because the deal isn’t done yet. The reality is, many homes can quickly fall out of escrow for various reasons from the buyer failing to secure their mortgage to a home inspection surprising you with a major problem. Or maybe a contract contingency can’t be met.
Whether you’re a buyer or seller, look at the top five deal breakers and learn how you can protect yourself from them.
Before you start needlessly worrying if your own pending home sale will go south too, you can actually safeguard in advance against the 5 common deal breakers we cover below:
- Problems with Inspection
In the traditional venue of home selling, buyers will pay a $350-$600 home inspection fee as a step in the selling process. This protects them against defects in your home that might not be immediately visible. A home inspector will look at your property inside out on their behalf for repairs that might be needed both large and small.
Armed with the home inspector’s assessment, buyers and sellers will then need to touch base, negotiate, and make comprises. The problem might be something as simple as replacing faucets to something as major as foundation problems.
As the home seller, you should ensure your home is in top shape from the beginning. We suggest you have your realtor or a handyman inspect your property to pinpoint any problems before you list your home for sale. Things you should confirm include the presence of termites and other pests, roof, centrical, plumbing, and foundation.
And if you’re the buyer, you need to accept any house that has been live will experience wear and tear. While there might be a very long list of repairs needed, not all the house’s problems might be critical. Furthermore, being too nitpicky might leave a bad taste in the seller’s mouth and spoil your deal.
Both seller and buyer should open to negotiate and compromise.
- The Inexperienced Buyer
According to the National Association of Realtors, 1/3 of all home buyers are first time buyers. While this is certainly good for the economy, their participation in the marketplace, unfortunately, means many sellers will be at risk to inexperienced buyers and their litany of mistakes. They might not have even secured a mortgage previously or easily get cold feet when it comes to the major purchase of buying a house.
If you’re the seller, you can require that buyers provide ample earnest money, usually 5-10% of the purchase price. Earnest money, notes Realtor.com, serves as a deposit and can be kept if the buyer backs out without good reason.
Earnest money or “a good faith deposit” will ensure you will be compensated for your time, effort, and disappointment should the inexperienced buyer back out last minute.
Now, if you’re the buyer, we suggest educating yourself before you even start looking for property. This will not only help you avoid costly mistakes but also make you feel more confident, so you don’t get cold feet even when bidding for your dream home.
- The Low Appraisal
We devote a whole post to the Low Appraisal problem elsewhere since it can lead to an unexpected financial loss when your home’s value in the current market comes in lower than you expected. Most lenders will ask for an appraisal before they issue a mortgage, and if that appraisal comes in lower than the purchase price, it can turn your sale sour as most banks will view it as a risky or very bad investment. This can result in you or the buyer having to cover the difference out-of-pocket. If none of the conditions is met, the contract might indeed end up cancelled.
Since your appraisal incorporates several criteria like comps in your location and square footage as well as more subjective impressions like home value, sellers shouldn’t hesitate to point out the facts about their home especially any upgrades made to add to its value like appliances installed, custom landscaping, and more.
Buyers too need to do their own research if an appraisal comes in low. Learn everything you need to know not only about the home you are buying but also the area its in. In the end, you might need to renegotiate with the seller.
- The Rejected Mortgage Loan
Don’t be so certain your buyer’s mortgage will be approved just because they have a good credit score and enough income. Other factors like job loss, a divorce, and other hardships can cost your buyer their mortgage and the funds to buy your home.
Sellers who entertain an offer needed to pre-qualify their buyer through their agent. This might require a pre-qualification letter or proof of funds. While the letter will not guarantee their mortgage, it can be a good sign along with a good credit score and income data that the buyer is qualified.
And if you’re the buyer, you need to collect as much documentation about your financial capability before you apply for a mortgage. Do everything you can to get your mortgage approved.
- The buyer can’t sell their own home
When a home sale depends on the buyer selling their home first, it needs to follow a specific timetable of about 60-90 days. If the buyer can’t make it happen, they run the risk of their contract being cancelled.
If you’re the seller and it’s a strong market, you don’t have to accept an offer that’s contingent on the sale of the buyer’s home. Simply reject that contingency in the contract and focus on buyers who have the means to purchase a home without first selling their home first.
If a buyer can’t finalize your deal because they are still waiting for a buyer for their own house, and it happens to be a strong market, you can turn down their offer and move on. You should entertain the buyers who are able to buy your home without selling their home first.
Of course, there are other reasons home sales can fall through, such as the seller realizing they are too attached to the home to part with the home, or a buyer fails to secure homeowner or title insurance. All real estate transactions carry a certain amount of risk, but the more you know and can prepare, the more likely the deal will go through.
These are the top deal breakers for home pending home sales going south. However, it can also be a case of you, the seller, changing your mind about selling your home. While all real estate businesses carry a little bit of risk, if you prepare yourself with the tips above, you are sure to survive.