We’re going to take a look at this situation from the perspective of selling your own home. Whether you use a real estate agent to sell your home, or you do it as a for-sale-by-owner, problems can arise that can cause the home sale to blow up, even after you have accepted an offer and contract on the property.
If you need to sell your home before moving onto the next one – and most people do – issues that delay or prevent the sale of your home can keep you from moving forward.
Below are the major reasons why home sales blow up. And just as important, we’ll offer some ways that you can avoid them.
Mortgage Problems for the Buyers
This problem usually comes under two very broad categories:
- The borrowers can’t get a mortgage approval
- The borrowers can’t comply with major conditions of the mortgage approval that they have
The first happens when the buyers agree to purchase your home, but they didn’t bother to secure a mortgage pre-approval beforehand. Most real estate agents will make sure that a buyer has a pre-approval before they even show them any properties. The experienced agents are well aware that a buyer without a pre-approval is a completely unqualified prospect. Usually, they won’t even bother to work with them.
But there’s a possibility that an agent – most likely an inexperienced one – will present an offer from a buyer who has not been pre-qualified. And in a few cases, it’s possible that the buyers have lied about having a pre-approval. Either way, if the borrowers haven’t been pre-approved, their offer to purchase your home could blow up.
The best way to avoid that situation is to insist that the buyers have a pre-approval – in writing. You might even be so bold as to ask for a copy of the pre-approval letter before accepting the final offer.
The second mortgage problem, and probably the more common one, is when the buyers have a pre-approval, but can’t meet the conditions to secure final approval. For example, the approval may be subject to the buyer’s receiving a large gift from a family member. Should the donor decide to back out of giving the gift, the loan process will be stalled. It’s even possible that the approval will be withdrawn if the buyers are unable to come up with a satisfactory alternative.
This is a much more difficult situation to work around. The best thing that you can do is to review the pre-approval letter and see if there are any substantial conditions that need to be met. If there are, you can ask that the buyers disclose the strategy to satisfy these conditions. However, understand that in a world of protected information, you may not be kept in the loop on these details – at least until they become a problem.
The Buyers Can’t Sell Their Current Home
If there is one mortgage contingency that is the most likely to cause a sale to blow up, it’s when the buyers can’t sell their current home.
This is a typical requirement by mortgage lenders. In most cases, either the buyer needs the funds from the sale of their previous house to complete the purchase of yours, or their income is insufficient to qualify to carry the mortgage payments on their current home and the one they’re purchasing from you.
Still another problem in this area is that they find that they can’t sell their home for as much as they expected. For example, if they were looking to put $50,000 down on your house, with the expectation that the cash would come from the sale of their current home, there could be a problem if the house sells for less than they expected, and they only get $30,000.
However this problem plays out, it can often be insurmountable. The best way to avoid it is by not accepting an offer from a buyer who is required to sell their home. You may eliminate a large number of buyer prospects by doing this, but you will also eliminate a blown sale later on.
As you might imagine, this is a big problem and not an uncommon one at that.
There are two parts to this issue as well. The first is when your home doesn’t appraise for the agreed-upon sale price. Should that happen, you can attempt to dispute the appraised value. This can sometimes be done by providing additional comparable sales in your neighborhood, that support the higher price.
However, since appraisers have access to nearly all of the sales data in your market, it’s unlikely that you will produce any comparable sales that the appraiser is not already aware of. In most cases, unless your buyer is willing to come up with extra cash for the original sale price – since mortgages are based on the lower of either the sale price or the appraised value – or you will have to lower the sale price to match the appraised value.
The best way to avoid this problem is by setting your sale price at a reasonable market level. While it’s natural for sellers to try and get a little bit more, it can lead to problems when the appraisal is done.
The second major appraisal problem is the discovery of deficiencies in your home. While appraisers will generally look past cosmetic deficiencies, they must report any problems with the property that will affect safety and livability.
If for example, the appraiser discloses that your roof is past its useful life and probably needs to be replaced, you will have to get a roof inspection. If the roof inspector confirms that the roof needs to be replaced, you’ll have to have the work performed before the closing.
The best way to avoid this problem is by making sure that all of the major components of your home are in good working order before you list the property for sale. A major deficiency could be a deal killer!
A Delayed Closing
This can become a problem when either you or the buyer needs to extend the closing date out past the usual 30 to 45 days. In theory, this shouldn’t be a problem, but it often is.
Let’s say that you accept an offer on your property with the closing 90 days out. The problem is that a lot can happen in that 90 days. For example, one of the buyers can lose a job. If that person’s income is needed to qualify for the mortgage, then the approval may be withdrawn.
There’s also the problem that your buyers might find another property that they would rather buy. Though they may be legally obligated to purchase your home, they may do everything that they can to torpedo the purchase with you. It’s the kind of thing that happens when people have too much time on their hands.
Sure, you can fight this legally by holding them to your contract. But if you need to sell your property to move on to the next one, this will only slow the process.
The best protection here is to make sure that the closing date happens as quickly as possible.
Never assume that the sale of your home is a done deal, at least not until it actually is. As you can see from the above, there are situations that could cause the sale to blow up before it happens. Be aware of the problems that can arise, and do what’s necessary to prevent them from happening from the very beginning.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.