One minute you’re on top of the world, the next you’re facing uncertainty.
It’s an old adage that’s made varied appearances in popular media from Mad Men and Daughtry songs to an unreleased scene in Matt Reeve’s rendition of Batman. Aspiring and veteran real estate agents should be well aware that the same applies to the home buying and selling process: uncertainty hangs over every deal.
There are many moving pieces in every real estate transaction. Your deal may fall through whenever a key factor moves out of alignment. With a little bit of informed vigilance, you will be able to increase your rate of successful closes.
Keep reading to learn about the reasons a deal is starting to slip and the warning signs that a deal will never close.
How often does a pending home sale fall through?
A pending sale may be referred to as “under contract” by some real estate agents.
Regardless of terminology, the meaning is the same. A sale is considered pending until the seller formally accepts an offer from a buyer. Once the offer is accepted, a contract must be signed by both parties.
For this reason, “under contract” is slightly more specific to the overall time a real estate transaction spends as “pending.” At the time of closing, both parties agree to sign all necessary documents. Once signatures have been completed, the deal is closed.
It should be reassuring for all real estate agents that not many home sales fall through. According to Trulia, over 96% of real estate contracts successfully close. In other words, less than 4% of contracts fall through for any reason.
Being prepared is the best way to avoid becoming a statistic, so let’s look at some of the reasons that a deal may fall through the cracks.
Here is a rundown of reasons your real estate deal may not fall through. To ensure that you can recover a slipping deal, it’s best to come up with an action plan for each scenario. With time, experience and a strong vendor network, you can best be prepared for problem-solving.
Reasons your deal may slip:
1. Inspection issues
It is common to expect that the buyer will hire a home inspector to check out the property; this is to avoid inheriting unforeseen major repairs. An inspection can often reveal major issues that either side would not have been aware of.
If significant repairs are required, the buyer may use findings to renegotiate the purchase price. Extensive issues, like mold, roof damage, or a bad foundation, might be used to back out of a deal. For sellers, it is good to make repairs prior to listing or be upfront by disclosing major repairs upfront.
Whatever side you are on, being aware of inspection issues and how to work with them will be paramount in increasing your close rate.
2. Asynchronous appraisal
Before a mortgage is approved, lenders will have a property appraisal. This ensures that the value of the deal is in sync with the sale price.
On the buyer’s side, if a property’s appraised value is lower than the contract’s value, the mortgage may be declined; the mortgage may be approved if the buyer contributes cash up-front (to make up for the difference in value). Should a buyer not desire, or be able, to come up with extra cash the deal will close. The seller would have to lower the price to save the deal.
On the seller’s side if your appraised value is higher than the contract value, you may have left money on the table. Increasing the contract value while “under contract” would very likely cause a deal to fall through.
Low appraisals are common during a “seller’s market,” which often occurs when housing demand is greater than housing supply. Ensuing bidding wars can result in prices far beyond the appraised value.
3. Home sale contingency
I’ve shared the situations that can trigger a home inspection contingency or appraisal contingency. You should also be aware of home sale contingency. With this contingency, the buyer’s home must be sold before they can close on their desired purchase. The selling period is a defined period of time, typically 30 or 60 days.
Home sale contingencies are considered risky as there is no guarantee that the buyer will sell their current home.
Before agreeing to a home sale contingency, I recommend considering both broad and regional market dynamics. Being aware of the current Days on Market (DOM) will help you decide on how long to make the selling period.
4. Financing fallout
Failed financing is a huge reason why, in multiple-offer scenarios, some sellers opt for lower cash offers instead of offers contingent on loan approval.
A buyer can have their loan application denied for a variety of reasons, including inexperience (I share details below) or simply not being able to qualify for financing. According to NAR’s Home Buyers and Sellers Generational Trends Report, almost 90% of buyers finance their purchases.
It is important to remember that pre-approval letters do not guarantee mortgage approval! To have a higher close rate, you should develop a strong ability in perceiving how motivated and experienced a buyer is; you should also consider how realistic their offer is.
5. Interested but inexperienced
A generous and highly-motivated offer might not translate into a closed deal if it comes from someone who is inexperienced. Forbes research shows that short credit history or increased scrutiny during the application process can cause a pending sale to fall through.
Buyers lacking experience may severely overestimate what they can afford… or in the case of a home sale contingency extremely underestimate their timeline.
An inexperienced seller might not be preferred for what a title search reveals about their property. If there are liens or judgments, the sale may not go through. It can be time-consuming to handle situations like unpaid property taxes or unpaid work by contractors. If another party is on the title, such as an estranged or uncooperative family member, the sale may not go through.
Being able to detect inexperience and being willing to proactively address potential issues will help you close more deals!
Signs your deal won’t close
As I have shared, there are many reasons a deal may fail. If a deal is dead in the water, it’s best to create an exit plan. At the very least, learning about these telltale signs will help you allocate your energy toward promising deals.
1. Unrealistic expectations
If your client ignores current market conditions, overvalues their property, or wants to only give lowball offers consider moving on. If you have already attempted to provide unbiased data and professionally-grounded advice, it may be best to concentrate on other clients.
2. Lack of executive decision-making
Another yellow flag is if your client seems to seek an excessive amount of input or approval from external sources, including their children, partners, friends, or business associates. This will generally lead to delays and long-term indecisiveness. In this scenario, it may be in your best interest to streamline communication.
3. Unmotivated behavior
Generally speaking for buyers and sellers, a lack of motivation can foreshadow that a deal may never close. There can be a variety of reasons causing a lack of motivation, whether they be personal or external does not really matter unless your client is forthcoming.
For example, a seller may be reluctant to disclose information about their homeowner’s association because of unapproved modifications; such a seller might be “wasting your time.” They may only be interested in seeing what their home is worth.
It’s best to ask questions that determine your client’s motivation. Questions like:
- Why are you wanting to sell/buy a property?
- Why at this time?
- How quickly do you desire to sell/buy a property?
- What happens if you are unable to sell/buy a property?
- What is your ideal closing date? How flexible are you?
If there is more than one buyer, it is a good idea to feel that all partners are on the same page.
4. Inconsistent information
It’s a yellow flag if your client seems hesitant to ask for all of the information you’ve asked for. On one hand, they may actively be hiding information. On the other hand, they may not actually have the information you need. Nefarious or not, inconsistencies about a property will almost always cause closing delays.
One area where a client may obfuscate information is the property’s current status; specifically, if it is owner-occupied, vacant, or a rental. This provides key insight into a seller’s motivation to sell and allows you to check if their motivation is in sync with what can realistically happen.
On the seller’s side, it’s key to consider what the seller owes against the property or if the seller is current on payments. If the seller has marginal to no equity or is behind on payments, you may have to work with the bank.
For buyers, consider market conditions and the appraised value of the property. A deal is unlikely to close if the value of the deal is out of sync with the current real market value.
Chris Heller is a real estate industry expert, best-selling author and currently serves as the chief real estate officer at Ojo Labs.
