Offer accepted! Buyers may feel a wave of excitement or relief when they hear good news from their real estate agent. But you still have work to do before the house becomes your home. Although an accepted offer shows progress, many more steps lie ahead before the seller hands over the keys. At this point, the buyer and the seller may agree on the basic terms, such as a price and the closing date. Finalizing the sale takes place weeks later at the settlement table.
What happens after an accepted offer that could stop a home sale?
Although the majority of home sales result in a successful transfer of ownership, problems can arise after an accepted offer. According to the National Association of Realtors’ most recent Realtor Confidence Survey, about 7% of home sales fell through in the three months ending October 2022, and another 14% of settlements did not close on time. Understanding the potential issues with real estate transactions and how to overcome them can help buyers and sellers work together toward an on-time closing.
Problem #1: Failure to agree on the terms of the purchase agreement
At this stage of the home purchase process, a sale might fall through if the seller and buyer cannot agree on some of the conditions of the sale, such as the amount of earnest money provided and the timing of home inspections. Both parties must work out the finer details to proceed.
Although the buyer and seller may discuss the settlement during initial negotiations, they must agree to a firm date when signing the purchase agreement. Selecting a date can depend on any number of timing issues. For example, the seller needs time to prepare to move out of the home and into a new residence. They may even want to remain in the house until the end of the school year. Alternatively, they may push for a quick sale to use the funds to purchase another home.
Buyers should also understand their responsibilities before signing the purchase agreement. First-time buyers need to secure financing, which can take some time, especially if they have not received a pre-approval. Buyers relocating for a job may choose a move date that coincides with their new work schedule.
The buyer and seller should review the purchase agreement and set a realistic timeframe for settlement, given all the steps to buying a house that need to take place in the coming weeks. If either party cannot complete their responsibilities, the deal could fall through later in the process.
Problem #2: Buyer or Seller Rejects Certain Contingencies
The buyer or seller may request contingencies related to the sale within the purchase agreement. A contingency allows either party to renegotiate or completely back out of the sale if certain events occur. Some examples of contingencies include:
The buyer may request that the home sale remain contingent on their ability to secure a mortgage or other financing. If their mortgage approval falls through, they may want to back out of the sale. Likewise, when buyers return to their lender to finalize a mortgage, interest rates may have risen more than anticipated, suddenly making the home unaffordable.
Home sale contingency
When buyers still need to sell their current home, they may request a contingency allowing them to back out of the new home purchase. However, the seller will usually request the right to continue marketing their home by adding a kick-out clause to the purchase agreement. If the seller receives another offer, they may return to the original buyer. The seller may ask the buyer to remove this contingency or terminate the contract.
In a strong real estate market, the seller may reject any sales contingency. Instead, they may prefer to hold off from signing the agreement and wait for another offer.
The buyer may request a home inspection and allow themselves room to renegotiate or terminate the purchase agreement based on the results. Generally, buyers will ask for a credit or request that the seller repair certain items before settlement.
If the home appraisal value falls below the amount of the sales price, buyers may request to renegotiate the contract price or simply back out of the sale. A low appraisal may affect the buyer’s ability to finance the purchase, as lenders calculate the amount of the mortgage they will approve based on the appraised value of a home.
Generally, the buyer requests that the seller provide a clear title to the home. The seller may not guarantee the title for foreclosures, sheriff sales, or estate sales. The buyer can request a title agent to run a search to help measure the risk involved in these “as-is” home purchases.
Problem #3: An issue with the home
A purchase agreement constitutes a binding contract, meaning that pulling out of a sale at this point may have detrimental financial effects for either the buyer or the seller. Financial consequences like losing earnest money or not selling the home typically motivate both parties to move forward with the sale. Still, sales fall through at this stage for several reasons.
Past Insurance Claims
Buyers may ask the seller for an insurance report, known as a Comprehensive Loss Underwriting Exchange (CLUE) report, to review prior insurance claims. Only the current homeowner may request this report. If the seller agrees to provide a CLUE report, buyers should review it for large insurance claims, such as flood damage, to evaluate the potential for ongoing issues with the home.
Home Inspection Results
If a certified home inspector uncovers a material defect in the house, buyers may wish to renegotiate the purchase agreement or simply cancel the sale. The cost of large repairs listed in the inspection report, such as the recommendation to replace the roof, may also cause an issue if neither buyer nor seller wants to cover this expense.
Problem #4: Buyer’s Financing Issues
If a buyer cannot come up with the needed funds to complete the home purchase, they will back out of the sale. Without a financing contingency in the purchase agreement, the buyer may lose their earnest money, and other amounts spent trying to close the sale.
Buyer Does Not Qualify for a Mortgage
The largest financing issue may be the failure of a buyer to obtain a mortgage. For this reason, sellers unwilling to face this risk may only entertain buyers with preapproval from their lender. The preapproval helps to limit financing issues occurring later in the process.
Low Home Appraisal Value
Lenders use a home appraisal to determine the financing they can approve for a homebuyer. The buyer may not receive the needed financing if an appraisal falls below the sales price. Also, a low appraisal value may concern buyers enough to walk away from the sale.
Problem #5: Settlement Falls Through
In the late stage of the home sale process, tensions may run high. Buyers and sellers who prolong their small disagreements until the end of the process may remain unable to find a solution, leading to the sale falling through. New issues may also come to light in the final days.
House Does Not Have a Clear Title
When the title agent runs a search in preparation for closing, they may identify external claims, such as liens on the property related to unpaid taxes or utility bills. These claims will need satisfaction before settlement. Title issues may draw the settlement process to a grinding halt, as typically, lenders will only give buyers a mortgage on a house with a clear title.
Issues During Final Walk-through
The all-important final walk-through provides the buyer with their last chance to spot issues with the home. At this point, buyers should understand which items the seller intended to repair or items that they agreed to accept as-is. Buyers should alert their real estate agent if they notice anything outside of the scope of their agreement.
Failure to Appear at Closing
When one party fails to show up at settlement, the sale cannot occur. If an unforeseen event causes a delayed settlement, the buyer and seller must set a new closing date with their real estate agents, lenders, and the party facilitating the sale. This could result in the recalculation of several items on the settlement sheet, such as mortgage interest. Based on the language in the purchase agreement, failure to close before a specific date might give one party the right to walk away from the sale. The party who does not appear could also face legal action by the opposing party, so it’s wise to avoid a delay, if possible.
The seller or buyer may question amounts on the settlement sheet at the settlement table. Participants should consult with their real estate agent or attorney if something appears incorrect.
p>While the seemingly endless list of things that can go wrong may scare first-time buyers, remember that most home purchases close on time. All parties at the settlement table share the same goal — a complete sale. If a disagreement arises when buying a house, trust your judgment and work with your real estate agent to negotiate points of contention professionally.