There are many steps to selling your home. While you may feel like celebrating after receiving a good offer, you might want to hold off on uncorking the champagne — an offer isn’t a done deal.
From offer to closing, the average sale takes 50 days, according to Realtor.com. A lot can happen during that time. Knowing what could go wrong at each stage can help you increase your chances of finalizing the deal.
What is a pending sale?
A sale is considered to be pending from the time a seller accepts a buyer’s offer until the sale is closed. Some real estate agents will also refer to a pending sale as “under contract.”
Sometimes a pending sale has contingencies. This means the buyer or seller has specific requests as part of their offer that need to be met. For example, a buyer could include a home inspection contingency, allowing them to back out of the deal if a major repair is found to be needed. Another common contingency is related to buyer financing, requiring that the buyer qualifies for financing for the sale to be complete. As each of these items is satisfied, the process moves closer to the finish line.
Reasons why pending home sales fall through
Understanding each of these scenarios can help you close the deal. As they say, prepare for the worst and hope for the best.
The buyer’s mortgage application is declined
One of the most common reasons a pending sale falls through is that the buyer isn’t able to qualify for financing. Eighty-eight percent of home buyers finance their homes, according to the National Association of Realtors (NAR) 2018 Home Buyers and Sellers Generational Trends Report.
Buyers will often submit a letter that they’ve been pre-approved or pre-qualified for a loan. While a pre-approval letter isn’t a guarantee, it goes further than a pre-qualification letter, which is simply an estimate of how much the bank believes the buyer can afford.
To receive a pre-approval letter, the lender has typically checked the buyer’s credit, verified their documentation, and approved them for a specific loan amount, according to Investopedia. Neither letter, however, guarantees a mortgage will be approved. There is always the possibility that a buyer has a change in their status, such as losing a job or acquiring additional debt. If there’s a financing contingency in the agreement, the buyer could walk away without penalty.
Major issues surface during the home inspection
Buyers will often require a professional home inspection so they don’t inherit any major repairs, and the inspection could reveal issues you weren’t aware of. The buyer may use those findings to renegotiate the purchase price.
If the inspection uncovers issues that the buyer feels are too extensive — such as mold, foundational issues or roof damage — they might use a home inspection contingency to back out of the deal. If your home requires significant updates, then consider making them prior to listing. You can also increase your chances of closing if you disclose major repairs upfront.
The buyer is inexperienced
According to Forbes, the inexperience of first-time buyers is one of the explanations why pending home sales are falling through. This group, which represented about a third of buyers based on a NAR report, may be more likely to have a short credit history. This can cause problems during the mortgage application process. First-time mortgage applications also get additional scrutiny, reports Forbes. If the first-time homebuyers can’t secure a mortgage, the deal may fall through.
Unlike sellers, buyers can often back out of a contract fairly easily, reports U.S. News & World Report. For example, buyers who are new to the process may overestimate what they can afford or underestimate the timeline. They may use a contingency in the sale contract as a way to exit it. This is why it’s so important to review each offer carefully. An experienced agent should have a good sense of how motivated a buyer is and if the offer is realistic.
The home gets appraised lower than the sale price
Before a buyer can obtain a mortgage, the lender will usually have the home appraised to ensure that its value is consistent with the sale price. If a home appraises lower than the purchase price, a bank may decline the mortgage or require the buyer to contribute additional cash to make up the difference.
A low appraisal is common during a seller’s market when housing inventory is limited, reports USA Today. Buyers often get in a bidding war, raising the price beyond the value that the appraiser assigns. If the difference between the offer amount and appraised value is substantial and the buyer can’t come up with more cash, they’ll likely use the financing contingency clause to walk away.
The buyer can’t sell their existing home
Some buyers look for a new home before they sell their current home. If they find a home they love, they might write an offer and include a home sale contingency. This means that if they don’t sell their home within a specified period of time, such as 30 or 60 days, they can pull out of the deal.
A home sale contingency can be risky for sellers because there’s no guarantee that the buyer will sell their existing home. If you’re agreeing to a home sale contingency, consider the current market conditions. The average Days On Market (DOM) metric will give you some insight into how long it can take a home to sell.
There are property liens or a title issue
Before closing, the buyer’s mortgage lender will require that a title company research the property to make sure the title is clean. They look for outstanding liens or judgments, such as unpaid property taxes or unpaid work by a contractor.
They also make sure there isn’t another party on the deed, such as a former spouse or heir, who isn’t willing to sign off on a title transfer. The sale typically can’t go through until any liens or title issues are resolved, and this can be time-consuming. A buyer may decide they don’t want to wait and let the pending sale fall through.
What you can do to help prevent a sale from falling through
Now that you understand what can happen after accepting an offer, let’s explore some proactive measures you can take.
- Be selective — offer price isn’t everything
It’s easy to be drawn to the highest offer, but you may also want to consider the likelihood the deal will close. What contingencies are included in the deal? How could those impact the process and timeline?
For example, some sellers require a pre-approval letter and proof of funds for the down payment before accepting. A strong pre-approval letter and a ready down payment are good signs that the buyer will be able to obtain a mortgage without a problem.
Learn more in our separate blog post titled “How to choose the best offer on your house”.
- Complete a pre-inspection
Before putting your house on the market, consider getting a pre-inspection. This step will alert you to potential problems that could hinder the sale of your home. An inspector will provide you with a list of repairs you can make before you sell.
The average home inspection costs around $326, according to HomeAdvisor.com. This may be more necessary if you have an older home, where major repairs are more likely.
- Consider saying “no” to home sale contingencies
If a buyer submits an offer with a home sale contingency, you don’t have to accept it. Of course, rejecting a home sale contingency brings the risk that the buyer won’t qualify for the mortgage without the sale of their existing home. Another option is to accept the offer and include a “kick-out clause” in the contract, according to Investopedia.
This allows you to continue to market the property and accept offers from other buyers. If you do receive another offer you want to accept, you must give the first buyer a specified amount of time, such as 72 hours, to remove the home sale contingency and continue with the contract.
- Provide a fact sheet to the appraiser
An appraisal is based on objective facts, such as square footage and comparable sales in the neighborhood. However, there are some factors that affect your appraisal that may be more subjective, such as the appraiser’s impression of where your home falls within the range for your location.
Provide them with a list of improvements you’ve made to your home, recommends CNBC. List any repairs you’ve done since purchasing the home, such as replacing your furnace or installing a new roof. Some of the improvements that might be overlooked in an appraisal include the installation of high-end appliances and custom built-ins.
In addition, point out your neighborhood’s unique selling features. If your school is the most prized in the district, let the appraiser know. Families often search for homes in a specific school’s boundaries. If your home has a high walk score, this is another fact to call to the appraiser’s attention.
Walkable communities have jumped to the top of many home buyers’ search criteria because they want to live in areas with easy access to public transportation, schools, stores and entertainment, reports the Washington Post.
- Consider selling to an iBuyer
One of the advantages of selling to an iBuyer like Opendoor is you don’t have to worry about the risk of a sale falling through because of buyer financing. We’re able to make a competitive, all-cash offer on eligible homes within 48 hours. Requesting an offer is free, and there’s no obligation to accept.
All real estate transactions carry a certain amount of risk, but the more you know the more you can prepare. Take the steps necessary to help eliminate the pending sale pitfalls that are within a seller’s control. Your offer will be more likely to go through, giving you a real reason to pop open the champagne and celebrate.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.
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