So after a lot of open houses and tough decisions, you finally have a signed deal. At this point, it might be tempting to pop open the champagne but don't just yet. Just because you have a signed contract doesn't mean things can't go wrong. There are still a few steps to get through before you can walk away with the keys to your new home. Most of the time things will be fine and you'll make it through to closing day without incident. Occasionally though, you will hit a snag and the deal will fall through. If you want to be prepared for the road ahead then you need to know what can go wrong in a real estate deal. Read on to see the top five reasons why real estate deals fall through.
1.) The Inspection
When you first signed the sales contract, it would have included some contingencies. These are a series of conditions that have to be met before the home sale can proceed. One of these would have been the home inspection contingency. As a buyer, this is one you can't afford to leave out of any contract. It protects you against the possibility of buying a home with severe issues.
If something major like a leaky roof is found, then you have the right to ask the sellers for relief. This can take the form of having them pay for contractors to fix the problems, a price reduction, or providing you with credit to fix the issue yourself after closing. But if the sellers refuse, then the inspection contingency allows you to exit the deal without penalty. This is unfortunate as it means you’re back to square one. But at least you won’t lose your earnest money deposit.
2.) The Appraisal
If you're purchasing with the help of a mortgage, then one of your requirements will be paying for a home appraisal. This is a valuation of what the property is worth in the current market. For lenders, the agreed price of a property must be roughly in-line with the appraised value. If this isn’t done, then in the event of a foreclosure the lenders have little chance of making back their money.
In most cases, the appraiser will find small issues that need to be corrected before closing. This will not make a deal fall through. But if they determine that the value of the property is thousands of dollars less than the sale price, then you have a problem. If the difference is only a couple thousand dollars then most buyers and sellers will reach an agreement. The sellers can agree to reduce the price, or the buyers can put down more cash to make up the difference. But if the difference is in the tens of thousands of dollars then the chances of the deal falling through rises drastically.
3.) The Mortgage
By far, the main reason why deals fall through is that buyers fail to get mortgage approval. This can happen for several reasons. Perhaps your credit score was too low or maybe your debt-to-income ratio is too high. Whatever the reason, it means you can't get the loan and will have to cancel the deal. If you included a mortgage contingency in the contract, then at least you'll have an easy way out but it still puts you back at the starting line.
The best advice for avoiding this is to get preapproved for a mortgage before you make an offer. This will tell you how much you can expect to borrow and highlight any issues that might put a stop to any loan approval. Many sellers won't even accept an offer from someone who hasn't been preapproved for this very reason.
4.) Issues with Closing Documents
A home transaction requires a lot of paperwork that has to be reviewed before things can proceed. Most of this will be handled by your Exclusive Buyer Agent, your attorney (if you hired one) and the bank's attorney. If any issues are found, they can usually be overcome if both parties are fully committed to the deal. But sometimes it’s not that simple and you could be left with the choice of walking away or taking on a property that has some “issues.”
One of the worst of these “issues” is outstanding liens on the property. Unless the seller pays those off, you'll be left with the responsibility of paying them if you proceed with the deal. Often, the seller needs the proceeds from the sale to pay off those liens. If an agreement can't be reached, then the deal is pretty much scuttled.
5.) Buyer’s Remorse
It’s not at all uncommon for buyers to get cold feet at the last minute. The contract has been signed and things are moving forward. This is a big moment for buyers, especially first-time buyers. It’s normal to feel a bit of anxiety at this time but sometimes this can spill out into total remorse and regret. Buyers in this stage will start looking for any loopholes they can to get themselves out of the deal. Even if it means losing their earnest money deposit. This is why it’s so important to be completely sure of what you want before you make an offer. Also, know the signs of buyer’s remorse and how to work through it.