The Four Most Common Reasons Home Buyers Back Out of Real Estate Transactions


Completing a successful Real Estate Transaction is difficult.

It takes several moving parts coming together at the right time to get a deal to the finish line. Even when you have a signed contract you still need the inspection, appraisal, insurance and closing to go off without a hitch. All it takes is one person dropping the ball or one unexpected surprise to bring the process to a halt.

A handful of buyers back out of deals every day. Knowing the reasons a buyer might back out of your transaction may better prepare you to avoid the cancellation altogether. Here are the four most common reasons that home buyers back out of a real estate transaction.

1. Financing Issues

There is a huge difference between a pre-qualification and a pre-approval. Most lenders or mortgage companies will issue a pre-qualification letter after reviewing the credit report and taking verbal information on income, assets and employment. This will provide a snapshot of creditworthiness but doesn’t dive into specifics. It is only when the loan is submitted to the bank and underwriting reviews the tax return, W2, bank statement and credit report when you will know exactly what is needed. The borrower may have received a portion of the down payment as a gift. There may be items deducted on the paycheck that reduce the net usable income. There are truly several financing items that could be a potential problem, especially if the buyer is self-employed. There is also the issue of the appraisal. The value must justify the purchase price with comps that match the property. The buyer and seller may agree on a price, but if the lender values the property at a lesser value than the purchase price, all parties in the transaction may have to deal with a reduction in price, a new appraisal, or the buyer walking away all together.

2. Overwhelming Home Inspections

Unless a buyer is paying cash or removing their physical contingencies upfront, the very first step in the post offer acceptance process is typically the home inspection. There are many deals lost after this step alone. The main job of an inspector is to find flaws with the property. As a buyer it is assuring to know that their inspector is going to scrutinize every inch of the property searching for potential defects. While this may be assuring, it may also create potential problems with the transactions. After the inspection, a complete a detailed list of the findings is provided by the inspector. There may be items that the seller previously had no idea about or repairs that were clear to the naked eye. Either way after receiving the report the buyer must assess whether the cost of repairs is truly reflected in the price. In most cases, the seller will opt to fix any minor updates either before the transaction or issue a credit at closing. However, if the items are severe and cost prohibitive, the buyer can opt to walk away and not deal with the headache.

3. More Desirable Alternatives

It is easy to think that the buyer for your property is head over heels with it and views it as their dream house. In many markets the reality may tell a different tale. It is not uncommon for buyers to send out multiple offers on different properties with the hopes of getting an offer accepted. Even when an offer is accepted it does not mean they stop looking. Unless there is a massive earnest money deposit, they may be able to walk away if they find a property they like more while risking little. Buyers can use their contractual contingencies or “lack of financing” to back out of a deal without breaking the contract. This wastes days or even weeks of time and can leave the seller start the process over from scratch. The best way to deter “shotgun” bidders is to increase the earnest money deposit. If they have more to lose if they walk away, the less likely they are to bid on properties they don’t really want.

4. Cold Feet

Anyone who has ever bought a home before knows it is a tiresome process. Not only is the amount of paperwork and documentation overwhelming, but it is also huge emotional commitment. From the time you even consider looking for a home up until the day of the closing it can be a giant roller coaster of emotions. These feelings are there in normal times, they are even more ramped up with a Global Pandemic and employment uncertainty. Even with interest rates near all-time lows knowing that you will be on the hook for a payment for the next 30 years can cause “cold feet”. All this uncertainty, commitment, stress, and obligation can overwhelm a buyer, who often relieve these emotions by cancelling the deal and revoking their offer. Up until the time the closing paperwork is signed and the deal is done, nothing is official.

Having a buyer back out of a deal is an unfortunate and potentially damaging aspect of selling a home. That is why it is critical to consider strength of offer terms and track record of buyers not just blindly pick the highest price. Decrease the chances of buyers backing out by listening to your real estate agent, increasing your earnest money deposit and compromising when needed after the inspection. Keep an eye out for other Red Flags in the offers you do receive and use these main reasons buyers back out of real estate transactions to better prepare yourself in the sale of your next home.

View The Original Article At CT Homes