Home-buying is a complex process that involves multiple steps, from finding the right property to securing financing, negotiating contracts, and completing the closing process. However, even after making it to the final stages of a home purchase, there is still the possibility that the deal may fall through. According to Trulia’s most recent data, only 3.9% of real estate contracts fell through in 2016, while 96.1% were completed successfully. In this article, we’ll explore the reasons why pending home sales may fall through and examine the percentage of deals that fail to close in 2023.
How often do closings fall through?
The rate of failed home sales can vary from year to year and from market to market. In general, however, the National Association of Realtors (NAR) reports that the percentage of sales that fall through is relatively low. According to the NAR’s 2021 Profile of Home Buyers and Sellers, the median percentage of contracts that were terminated or delayed was 4% among all buyers, and 5% among first-time buyers.
The reasons for cancelled contracts also varied, with issues related to the inspection process cited as the most common reason for termination or delay. Other factors that may contribute to contract cancellations include financing issues, appraisals that come in too low, or unexpected issues that arise during the closing process.
How often do pending home sales fall through?
Pending home sales refer to properties that are under contract but have not yet closed. These sales are still considered “pending” until all conditions have been met, and the transaction is finalized. Although pending sales are not necessarily indicative of completed transactions, they can be a useful measure of market activity.
According to recent data from the National Association of Realtors, the percentage of pending home sales that fall through varies depending on the market. In some areas, the rate of contract cancellations can be as low as 2%, while in others, it may be closer to 10%.
7 Reasons why pending home sales fall through
- Financing Issues
One of the most significant reasons why pending home sales fall through is related to financing issues. Even after a buyer has been pre-approved for a mortgage, there is no guarantee that they will be able to secure financing for the property they want to purchase. If the buyer’s credit score changes or their debt-to-income ratio shifts, the lender may be unwilling to fund the loan, leading to a cancelled contract.
- Home Inspection Issues
Home inspections are a critical step in the home-buying process, as they allow buyers to identify any potential issues with the property before closing. However, if the inspection uncovers significant problems with the home, such as a faulty foundation, outdated electrical wiring, or a leaking roof, the buyer may decide to back out of the deal.
- Appraisal Issues
Another common reason why pending home sales fall through is related to appraisals. When a lender approves a buyer for a mortgage, they will typically order an appraisal to ensure that the property’s value is in line with the agreed-upon purchase price. If the appraisal comes in lower than expected, the buyer may be unwilling or unable to secure financing for the full amount, and the contract may be cancelled.
- Title Issues
Title issues can also cause pending home sales to fall through. If there are liens, encumbrances, or other legal disputes related to the property’s ownership, the buyer may be unable to secure title insurance or be unwilling to take on the associated risks. In some cases, resolving title issues can take time, leading to delays or even the cancellation of the sale.
- Changes in the Buyer’s Situation
The buyer’s situation can also change between the time the contract is signed and the closing date. For example, they may lose their job or encounter unexpected expenses that make it difficult to secure financing. In some cases, the buyer may simply change their mind about the purchase, leading to a cancelled contract.
- Issues with the Seller
In some cases, issues with the seller can also cause pending home sales to fall through. For example, the seller may fail to disclose critical information about the property, such as prior damage or problems with the title. Alternatively, they may refuse to make requested repairs or renovations, leading the buyer to back out of the deal.
- Natural Disasters
Natural disasters can also impact pending home sales. In areas prone to hurricanes, floods, or wildfires, pending sales may be cancelled due to property damage or concerns about future natural disasters.
What is a good offer on a house?
Assuming the property is priced at a reasonable market price, as a general rule of thumb, a homebuyer could start with offering 5-10% less than the asking price, but ultimately the offer should be based on the buyer’s budget and the value of the property.
It’s important to work with a real estate agent who can provide guidance on making a competitive offer based on current market conditions and help negotiate with the seller. Most importantly, the agent can assist in conducting a comparative market analysis to determine the fair market value of the property. If the property isn’t even priced fairly to begin with, there’s no point to negotiate further.
It’s also crucial for the buyer to consider any additional costs associated with the purchase, such as closing costs, home inspections, and any necessary repairs or renovations. These expenses can impact the total cost of the purchase and should be factored into the buyer’s budget and offer.
At the end of the day, the amount offered should be based on the buyer’s financial situation and the perceived value of the property. It’s important to approach the offer process thoughtfully and with the guidance of a trusted real estate professional.
Alright, folks, let’s wrap this up. When it comes to home sales, there’s always a chance things could go south. But don’t you worry, because with a little bit of teamwork and some good old-fashioned communication, you can increase your chances of a successful sale. So if you’re looking to buy or sell a home, make sure you work closely with your real estate agent, get those inspections done, and make sure your financing is in order. And if Mother Nature decides to throw a curveball your way, just remember, you can always bounce back!