Why Do Contingent Offers Fall Through?

Industry Observer with HomeWarrantyReviews.com

Imagine this, you've readied your home for a sale, kept an open house, and voila, a buyer submits an offer. You think that this is a done deal and start planning your next move. It isn't, however, as simple as that. An average home sale can take up to 50 days to close.

The majority of real estate sales are based on contingencies, the 'if and only if' clauses. A contingent offer means that the final sale is dependent on certain conditions that need to be met. A pending sale usually occurs under the following circumstances -

1. When the seller accepts the offer but the sale isn’t closed yet.
2. In the case of a contingent sale, the buyer or seller have to fulfill certain conditions in order to close the sale.

Many pending sales fail at the last moment. There are many reasons why contingent offers and pending sales fall through. National Association of Realtors' (NAR) survey depicts that 76% of closed sales had purchase contingencies, of which 9% of contracts were terminated. Read on to find out the most common causes of failed sales -

Why Do Contingent Offers Fall Through?

Home Inspection Contingency
A common sale obstacle arises during home inspections. The buyer's offer is usually contingent on a home inspection report. If the report lists any problems with the house, the buyers tend to use this as leverage to fix the issues or include repair credits as part of the sale to cover the costs or ask you to reduce the house price. The buyer may even choose to walk away in some cases.

Financial Difficulties
Financing difficulties are among the chief causes of the failure of a pending sale. A few reasons could be -
1.Change in Financial Status - Losing a job (especially during the Coronavirus outbreak), new debt, etc.
2. A lender can cancel their pre-approval if there is a change in lending guidelines.
3. Lenders may also deny loans to people who have a high debt-to-income ratio.
4. Lenders also do not offer a loan unless liens against people are cleared.

Appraisal Contingency
Bidding during a sale can elevate the price of a house to more than its market value. However, lenders don't approve loans for a property for more than its appraised value. If an appraisal lists a lower price, options include the buyer paying the remaining difference in cash or choosing to back out, or reducing the price.

Home Sale Contingency
This particular contingency states that the homeowner should sell the home to the buyer first within a set date or the contract is terminated. The risk level is relatively high with this contingency, and most real estate agents suggest avoiding a contract that specifies it. The sale can fall through any moment, even when you are packed and ready to move, and you have to start the entire process again.

Buyer's Remorse
Buyer's remorse is mainly associated with the purchase of expensive objects like real estate and vehicles. Purchasing a home is a crucial financial decision in someone's life. It is not a wonder that someone gets cold feet at the last moment and backs out of the deal.

What Can You Do In Such Predicaments?
It may be clear to you that buyers can find any reason to back out of a sale. You can choose to not agree to contingencies; however, rejecting a home sale contingency decreases a buyer's ability to get a loan.

As a seller, you can include a 'kick-out' clause in your contract. By doing so, you can have your home on the market and continue to accept offers until the buyer finalizes the deal. You'd have to give the buyer notice if you'd like to accept another offer.

It would be best if you were selective about the offers you receive. While a high offer is appealing, an appraisal can turn things around, and the deal may not close. It is wise to go for offers with a minimal number of contingencies.

You can also avoid surprises by pre-inspecting your house. You can find out what areas or items need work before the buyer's inspection. Having a home warranty in place can be useful in such cases. You can easily have any of your appliances or systems repaired or replaced and have your place ready. A home warranty policy can also raise your home's resale value as it is transferable to the buyer. You can read more about home warranty policies, plans, and other details on homewarrantyreviews.com.

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