The Buyers Financing Falls Through Is The Number 1 Reason Home Sales Fall Out Of Contract.
The number 1 reason home sales fall out of contract in the United States, is the buyers financing falls through. This often happens on the last few days of escrow when the buyer is supposed to sign all of their loan and escrow documents and close on the sale. Unfortunately, this often happens after the sellers have had multiple inspections conducted on their home, made repairs or other concessions to the buyer, and moved out of the home as well. Additionally, sellers are now forced to relist their home on the market and every other potential home buyer will wonder if there is something wrong with the seller’s home.
What Can Sellers Do To Prevent Their Buyers Financing From Falling Through?
Number 1, before you accept any offer, you should insist that buyers send not only their pre-approval letter for the purchase amount listed in the contract, but also documentation known as their proof of funds that shows the buyer has enough cash on hand to cover their down payment, their earnest money deposit, and all of their closing costs as well. As a seller you can also ask potential buyers to provide their initial DU or what’s known as their desktop underwriting findings. This is a quick, yet detailed profile of a buyer’s financial qualifications and it provides a fairly accurate picture of whether that buyer is likely to run into problems with their home loan or not. As a seller if you’re evaluating multiple offers on your home, I always recommend selecting the most qualified buyer even if their offer might be slightly lower than an offer from a less qualified buyer. Since we’re on the topic of multiple offer situations here is a quick pro tip. Not only do you want to select the most qualified buyer but you also want to try and select the most motivated buyer as well. Motivated buyers are generally the buyers who submit all of the required documentation with their purchase contract ahead of time and respond to questions and counter offers within hours. Beware of agents who tell you their buyers are very motivated but then take days to get back to you with their documents or counter offers.
The Second Reason Home Sales Fall Through Are Issues Discovered During The Home Inspection.
The second reason many home sales fall out of contract are maintenance issues that are identified during the home inspection. Home inspections are extremely stressful for both buyers and sellers and generally raise more questions about the home then they answer. Because home inspectors face serious lawsuits from buyers if they miss potential defects in the home, they tend to be extremely thorough and call out even the most minor problems in the home. Many home buyers can be overwhelmed by the prospect of serious maintenance issues identified in the home inspection, and some will choose to cancel the contract by using the Inspection Contingency that allows the buyer to cancel and get their full earnest money deposit back, causing the seller to have to put their home back on the market, and again other home buyers will wonder what is wrong with the home.
What Can Sellers Do To Keep A Home Inspection From Derailing Their Home Sale?
As a seller the number 1 thing you can do to keep your buyer from cancelling their contract because of issues found during the home inspection is DISCLOSE, DISCLOSE, DISCLOSE. When you list your home for sale you are required to fill out a series of disclosures that identify any and all known maintenance issues with the home as well as any other problems or nuisances that could affect the value of the home. The best thing you can do as a seller is to be as thorough as possible when filling out these seller disclosures and identify every maintenance issue you are aware of for the home. And when I say everything, I mean everything from major maintenance issues to small cosmetic issues liked chipped paint or stained carpet. Pro Tip: I like to ask buyers to sign and acknowledge these seller disclosures before they submit an offer on the home, so they are aware of any maintenance issues before we ever accept their offer and open escrow. Some sellers are afraid this might scare potential buyers from writing an offer on their home, however this goes back to finding the most motivated buyer you can. A truly motivated buyer will understand that maintenance issues are a part of home ownership and the less surprises they are hit with during their home inspection the more likely you are to close on your home sale.
The Third Reason Home Sales Fall Through Is A Low Appraisal.
Another major contract killer is a low appraisal. This problem is happening a lot more often as most of the country is in a red hot sellers market here in late 2021 and I would expect this trend to continue well into 2022 and beyond. While a low appraisal can definitely be a deal killer and is nothing to celebrate it also means that the purchase price agreed to is well over market value and you’re definitely getting top dollar for the home sale. As a seller some things you can do to keep a low appraisal from killing your home sale is to ask home buyers to waive their appraisal contingency with their offer or ask potential home buyers to pay any difference that arises from a low appraisal up to an agreed upon amount. For example, a buyer can agree ahead of time to make up the difference on a low appraisal up to say $10,000 or any other amount the buyer and seller both agree to. I want to reiterate here that any time a buyer waives their appraisal contingency or agrees to make up the difference make certain you review the buyers proof of funds to ensure they have enough money on hand to follow through on their agreement. PRO TIP: Most home sellers are not aware that buyers using an FHA or VA home loan can not legally waive their appraisal. While they can send you an appraisal waiver with their contract the FHA VA Amendatory clause supersedes the appraisal waiver and essentially makes that waiver worthless, so keep that in mind when comparing multiple offers on your home.
Finally, while there are many reasons that can cause a home sale to fall through, the three we just discussed are by far the most common, and as a seller if you plan ahead you can help mitigate these issues and help ensure that your home does not fall through. Remember to always verify each potential home buyers assets and pre-approval prior to accepting any offer. Look for the most responsive and motivated buyers. Disclose any and all defects in the home to potential buyers prior to opening escrow, and have a plan in place for dealing with a low appraisal. If you ensure to address each of these issues ahead of time the odds are your home sale will close the very first time.
If you have any other questions on how to keep your home sale on track or would like to share your experience why a previous home sale fell out of contract please feel free to leave them in comments below or you can always reach out to me directly.