2 Reasons Real Estate Contracts Fall Through

Note: This article references business practices in Middle Tennessee. Customs in your region may be different.

I love a surprise. As in, I’m entitled to 20% off the already low price, the milk is still good despite being past the expiration date, or there is no traffic on I-65 S.

But surprises are not only unwelcome when buying or selling a home, surprises put contracts in jeopardy.

Contracts frequently fall through because one or more contractual contingencies weren’t met.  Such as:

APPRAISAL

Often an agreement is contingent upon the “appraised value either equaling or exceeding the agreed upon purchase price.”

One way to head off potential problems is for the seller’s representative to be sure the appraiser has the current information about the property.  Such information might include:

• Dates and description of home improvements
• Copy of the floor plan
• Description of neighborhood amenities
• Comparable market analysis

If the appraised value is less than the agreed upon sales price (surprise!), there are options:

• Buyer leverages the appraisal to negotiate a lower price or obtain credit for repairs.
• Buyer (or seller) orders (and pays for) a reappraisal. It could be that the appraiser is not familiar with the local property values. Talk to the lender about the appraiser’s background in evaluating similar homes.
• Contract terminates.

FINANCING

Many hands, many documents, and many requirements mean many opportunities for surprises in the loan process:    

• Buyer doesn’t formally apply for a loan within 5 days after the Binding Agreement Date.
• Buyer doesn’t provide a conditional commitment letter from the lender within 20 days after the Binding Agreement Date.
• The earnest money check bounces.
• Buyer financing falls through.
• Buyer waives the financing contingency, but the stock he was planning to liquidate to purchase the home drops 25 points leaving him unable to close.
• Buyer waives the financing contingency, but reserves the right to obtain a loan, which is denied.
• Buyer waives the financing contingency, but the life insurance proceeds on which he was counting don’t materialize.
• Contract terminates.

Don’t be surprised. Know your contingencies.