Real estate transactions can fall apart for many reasons. Fortunately, a very small amount of home purchase contracts actually end up terminated — just 6 percent as of March 2022, according to the National Association of Realtors (NAR). If a closing hits a snag, it’s typically resolved rather than canceled altogether.
Below are some of the top reasons home sales fall through, how to avoid these situations, and what to do if it happens to you.
5 reasons home sales fall through
- Home inspection issues (32 percent): One of the most common reasons home sales fall through is a home inspection issue, according to NAR. Buyers often make an offer contingent on a clean inspection (one that doesn’t reveal major problems with the home). If the inspection uncovers extensive damage or other issues that’ll be costly to repair, the buyer can choose to walk away from the deal.
- Denied a mortgage (13 percent): Another common reason for a sale to fall apart? Issues with financing. Most buyers will have a mortgage preapproval by the time they start making offers on homes, but a preapproval isn’t the same as final approval. The mortgage lender could still deny the buyer a loan if the buyer’s financial circumstances have changed or if they didn’t disclose pertinent information at the time of preapproval. Without a mortgage, the transaction will fall through.
- Low appraisal (11 percent): Lenders almost always require an appraisal of the property to make sure it’s worth enough to secure the mortgage. If the buyer makes an offer and the home appraises for less than the proposed price, the lender might not be willing to approve the mortgage.
- Buyer stops working (5 percent): If a buyer loses their job (or source of income) between the time their offer is accepted and the closing, they might no longer be able to obtain a mortgage or afford the home.
- Deed or title problems (1 percent): Once you get past contingencies around the inspection and financing, it’s not as common for deals to fall through, but it can still happen. In most transactions, the lender requires title insurance, which means a title company has to perform a title search to ensure there are no liens or other claims to the property. In some cases, this search unearths issues with the title, which can lead to a canceled contract.
How to stop a sale from falling through
Both buyers and sellers have a vested interest in ensuring the transaction goes through successfully.
For buyers, it’s crucial to share everything about your financial situation with your mortgage lender when you get preapproved and to maintain the status quo while your application goes through underwriting. That means don’t apply for a new credit card, buy a car or any other big-ticket item, or change jobs (if you can help it).
That also means being responsive to your loan officer if they have questions so you can avoid hiccups with the closing. Ideally, you want your lender to be able to issue final approval for your mortgage without delay.
For sellers, it can make sense to get a pre-listing inspection so you can address any issues before a buyer’s inspector finds them. At the very least, this can help you avoid surprises and potentially give you an opportunity to make repairs at a budget you’re comfortable with versus needing to make concessions for the buyer. Of course, it can also help you avoid a terminated sale.
“Sometimes a seller is not aware of significant problems in their home,” says Bill Gassett of RE/MAX Executive Realty in Hopkinton, Massachusetts.
What to do if the sale falls through
If a home sale falls through, there’s not much you can do about that transaction specifically. If you were the buyer, ideally, you’ll have had a contingency to refund your earnest money deposit, and you can move on to the next listing.
As the seller, if you know why the transaction failed, consider what you might do to prevent the situation from happening again. For example, if the buyer’s inspector found defects, it’s a good idea to take care of those (or be prepared to disclose them) before listing again. If the issue came down to financing, you might want to more carefully vet future offers with your real estate agent to ensure the buyer has the resources to complete the transaction.