Protect Your Sale from Falling Through

There are many reasons a deal fails during the homebuying process. These can range from contingencies not being met to warning signs being ignored to financing problems. Understanding the most common pitfalls can help prevent your deal from falling through.

Contract contingency clauses

In the real estate contract, several contingency clauses protect both the buyer and the seller from having to consummate the deal if certain requirements are unmet.

Breach of contract
Both the buyer and the seller can be held liable for breach of contract if they fail to perform the duties outlined in the sales contract. This can be as significant as the buyer failing to close and take possession of the property, resulting in losing their earnest money, good faith deposits, or escrow funds, and additional penalties and fees. Conversely, a seller would be in breach of contract if they reneged on the sale, in which case the buyer could sue for specific nonperformance.

Buyer or seller remorse
Sometimes the buyer or seller will experience remorse and will consequently back out of the deal. The ability of either party to exit gracefully or of the aggrieved party to sue will depend on how long the sales contract has been in effect.

Clear title
Before a loan is approved, the lender requires a title search on the property being sold to ensure there is a clear title and a secure transfer of ownership from the seller to the buyer. Possible issues may include government back taxes, unpaid contractors, or other potential property ownership claims. A sale can break apart if there are any title defects

Contingency of sale
This is a common contingency clause for buyers who must sell their current home before purchasing the next. It enables them to enter into a sales contract, but they will only be held to close on the home if their existing home has sold by the scheduled closing date. Conversely, the seller can choose not to extend the deadline, void the contract, take backup offers, or relist their home. Neither party loses money, only time.

Financing
Higher interest rates can cause the buyer to not qualify for a mortgage. Other factors could include a lack of closing funds, sudden health issues, a job loss, or a change in financial status, all of which may prevent the buyer from securing a mortgage, forcing the buyer to withdraw from the sale.

Home inspection
The buyer is entitled to reconsider their offer based on the inspection findings. They may attempt to renegotiate the sales price for costly repairs or replacements, such as a major appliance, the HVAC system, or a damaged roof, or for foundation issues that may affect the home’s integrity. This clause allows both the buyer and the seller to cancel the contract if they cannot come to a meeting of the minds.

Low appraisal
Especially in price-inflated markets, a sale can fall through if a real estate appraiser deems the sales price too high for the market, meaning it doesn’t match with the rest of the community’s recent sales. However, the sale may proceed if the buyer agrees to put more money into the down payment—decreasing the loan-to-value ratio—or if the seller agrees to the appraised amount.

Warning signs

Usually, there are plenty of warning signs that a buyer or seller may pull out of the deal—they‘re not expected or may be ignored. Be mindful of these signs, and immediately consult with your agent if you suspect something is awry.

• The paperwork is not signed, dated, and returned promptly.
• The required deposits need to be made as outlined in the contract.
• The real estate agent, lender, or other key players involved in the transaction are not returning your or your agent’s calls.
• There have been an unusual number of requests for contract changes.

How to protect yourself

Whether you’re the buyer or seller, keeping your deal intact should be your top priority. Although not every contract can be saved, your real estate agent’s communication and expertise will help you successfully arrive at the closing table. Consider following these tips to help keep your sale from falling apart.

• If you’re the seller and something in your home breaks after the home inspection, repair or replace it before closing or alert the buyer of the issue so you can agree on how to handle the problem. If you provide a credit at closing for the replacement or repair cost, show proof of a fair estimate to the buyer.
• Be open to negotiating if you have a hiccup in the home inspection, closing date, etc. It’s better to try to come to a compromise than to allow the sale to fall through and start the process all over again, costing you time and money.
• Consider conducting your own property survey before listing your home to ensure there are no surprises. It’s not uncommon for buyers to withdraw from the deal if there are property line issues.
• Have your agent ask the buyer’s agent for proof of funds, especially if it’s a cash deal. Also, regardless of what side of the transaction you’re on, stay in constant communication with the mortgage company to be sure everything is on track for a timely closing.
• As with any lender, be sure to vet them before applying for a loan, and beware of fraudulent lenders that promise things that seem too good to be true.
• Sometimes, a lender may fail to produce the mortgage in time for closing, putting the buyer at risk of the deal falling through. Having a good rapport with the seller and their agent can help you negotiate for a closing extension, keeping the deal together. Don’t ignore contingencies in the contract. For example, if the buyer makes the sale contingent on certain repairs, complete them before the final walk-through. Also, hang on to your receipts, as the buyer may request proof of repair, especially if a professional contractor completed it.