Selling a home is both stressful and time-consuming, and these qualities are exaggerated when you encounter issues that prevent you from closing the deal. If you’ve sold multiple homes, you’ve probably already experienced this scenario: you find a good buyer with a good offer, the deal moves along, and right before it closes, the buyer pulls out.
Dealing with such unexpected situations can be frustrating, especially considering the closing costs and other fees you’ve likely incurred. Using private money for funding may ease the financial strain, as it covers about half of the assignment fee and due diligence costs typically handled by a title company.
It can be devastating to experience this as a home seller, since it means you’ll have to start over at square one. It’s essential to stay vigilant about due diligence and other aspects to mitigate risks and ensure smoother transactions in future sales.
But why do these last-minute real estate deal breakdowns happen? And what can you do to prevent them?
Why Deals Break Down
Real estate deals breakdown for many different reasons, but these are some of the most common:
- Inspection issues. Before closing the deal, homebuyers are typically entitled to conduct a home inspection. The house itself may look good on the surface, but there could be issues lurking underneath; with the help of a home inspector, buyers can explore the house in detail, identify potential issues, and pull out if the issues are substantial enough to cause real concern. In most cases, home inspections go relatively well; there may be several issues to flag, but a simple round of renegotiation should be more than enough to compensate for this. The seller can either fix the issues or negotiate for a slightly lower purchase price to accommodate these findings. That said, most purchase agreements have clauses in place that allow buyers to withdraw from the deal if the home inspection raises any major concerns – and there’s plenty of room for subjective interpretation here.
- Financing problems. Most people buying a home need financing to complete the purchase – but if the financing falls through, they won’t be able to close the deal. There are many reasons why financing might fall through. There could be a major disruption in the person’s financial life, such as job loss, or it could be that the buyer lied about some aspect of their financial status. Whatever the case, if the bank decides that it’s not going to lend the money, the borrower is not going to be able to purchase the house.
- Appraisal discrepancies. Banks can also choose to stop financing if there’s an issue with the home appraisal. The home appraisal is an opportunity for the lender to ensure that the price being paid for the home isn’t wildly exaggerated; it’s a reasonable risk control measure for lenders to practice. It’s very rare for a home to face an insufficient appraisal, but it does happen.
- Failure to sell. In some cases, buyers have contingencies in their purchase agreement that allow them to require the sale of an existing home before the deal can be finalized. If the homebuyer is unable to sell their existing home in this scenario, they may not have the proceeds to close the deal, and they may have a right to pull out.
- Title errors and issues. There could be errors or issues associated with the title of the home. Outstanding liens, public record errors, past bankruptcies, and missing heirs are just a few of them. Unfortunately, these can be difficult to sort out, and they may jeopardize the entire deal.
- Disasters. Less commonly, good deals fall through because of major disasters. If your house burns to the ground or if an earthquake deals significant damage to it, the original offer may no longer be valid.
- Major life events. Sometimes, buyers pull out because of major, typically unexpected life events. If the buyer is a couple and they get divorced, they may no longer be willing or able to follow through with the purchase.
- Change of heart. Rarely, deal breakdowns happen because of a simple change of heart. The buyers have second thoughts about this property, or they find a better one, and they become willing to lose the earnest money in pursuit of a different deal.
Contract Stipulations
Keep in mind that purchase agreements and other contracts can solidify contingencies that allow buyers to pull out of the deal without any penalty whatsoever. Typically, major inspection issues, failure to appraise, and financing issues are covered here. In most real estate agreements, any reasonable or understandable reason for pulling out of the deal is tolerated.
If a buyer pulls out without good reason or in a way that violates the contract, you can hold them accountable by keeping their earnest money – and potentially suing them as well. Talk to your agent and/or a real estate lawyer here to better understand your options.
How to Avoid and Manage Last-Minute Deal Breakdowns
Fortunately, most last-minute deal breakdowns can be prevented.
- Get a real estate agent you can count on. The right real estate agent can make a huge difference in your home selling experience. They can help you prepare an ironclad contract, answer your questions, and advise you on how to proceed in a difficult situation.
- Read contracts carefully. Always make sure you understand the contracts before you sign them or accept them. The fine print does matter, especially when it comes to approved contingencies.
- Check your knowledge. You may think you know your house well, but it pays to scrutinize and reevaluate your knowledge. Are you certain there aren’t any major defects in your house? Do you know for a fact that there aren’t any liens on it?
- Negotiate in good faith. Try to negotiate in good faith and your buyers will likely reciprocate. Allow for reasonable contingencies, and don’t try to nickel and dime your buyers; if the initial negotiation is annoying or downright painful, your buyers may take any excuse to pull out of the deal.
- Consider cash offers. If you’re worried about financing falling through, consider cash offers with higher priority. All cash offers are much less likely to break down.
- Eliminate contingencies. Another strategy is to eliminate or reduce the number of contingencies available to buyers. Do be aware that this can make the deal less attractive and scare some buyers away, but those that remain will have fewer legitimate reasons to pull out.
If you want to avoid problematic breakdowns, or if you just want a smoother, more efficient experience in real estate investing, you need the help of a talented team of real estate agents – and possibly an Austin property manager. Green Residential is here in Texas to help you with all your real estate needs. If you’ve got a new goal to achieve, a problem to solve, or a burning question that needs to be answered, contact us today!
Michael is Green Residential’s Vice President. He helps to keep the team organized and running smoothly. Prior to joining Green Residential, he spent 12 years working at Cadence Bank in the mortgage loan servicing department, where he specialized in loan audits, modifications, and bankruptcy-related issues for the mortgage portfolio.
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