You Need to Know the Top 4 Reasons Contracts are Falling Apart
Updated: Jun 30
Photo Copyright : Kittisak Jirasittichai / 123rf.com
Whether you have worked for weeks to prepare your home for sale or you’re a prospective buyer in need of a new place before the holidays, there’s a lot riding on this contract. There are many things that can cause a real estate contract between a buyer and a seller to fall apart. However, a few problems cause contract delays and contract terminations more often than others.
The REALTORS® Confidence Index (RCI) survey gathers on-the-ground information from REALTORS® around the country based on their real estate transactions in a given month. Today, well take a quick look at the survey results for September 2020, the most recent month for which data is available.
Know which issues could spell trouble for your closing. Here are the top four reasons real estate contracts are falling apart.
REALTORS® Confidence Index (RCI) survey, Issues Affecting Buyers and Sellers
1. Home Financing
Home prices have been trending, according to NAR. Locally, home values have followed suit, reaching a regional median sale price of $314,950. However, interest rates have dropped to record lows, making 2020 still a good time to buy for many. Unfortunately, home financing remains the top reason why contracts are delayed (29%) or terminated (13%).
What this Means for Home Buyers
It’s more important than ever to understand how much home you can buy before you begin your home search. To make the most of the current situation, work closely with your loan officer. Supply all your income and asset documentation so you are prepared to act when you are ready to make a confident decision. There’s no substitute for being well prepared in tumultuous times.
What this Means for Home Sellers
Before you accept an offer, be sure your home buyer has received a full approval minus an appraisal. Not all lenders offer this service, but it can be invaluable for creating peace of mind for you.
2. Appraisals
In a home sale, the appraisal is used to determine whether the contract price is appropriate given the home’s location, permanent physical features and amenities, and current condition. However, homes are currently appreciating more quickly than the historical norm. And we’re seeing increased competition for homes under $600,000. That combination means appraisals are falling behind real-time home values and have become a major concern for contract delays (21%) and terminations (12%).
What this Means for Home Buyers
If a home appraises at less than your contracted offer, you will likely be responsible for paying the difference. (Often, your home loan will not cover more than the appraised value of the property.) Before you make your offer, make sure you have some wiggle room in your savings. Do you have enough to cover the down payment, closing costs and fees, and a few thousand more if the appraisal comes up short? If not, you may see your contract fall through.
What this Means for Home Sellers
Setting the correct list price is the most important decision homeowners make when selling a home. While appraisals are typically ordered by the buyer during due diligence, it may serve you well to have your home formally appraised before it hits the market. Your agent can help with that. Right now, the highest offer you receive isn’t necessarily the best offer. If you accept a high offer, but the buyer can’t cover the difference between the loan amount they were pre-approved for and the appraisal value, you may see yourself starting contract negotiations all over again.
3. Home Inspections
Almost all homes, even brand new ones, have at least minor issues that need to be resolved. However, larger issues that were undisclosed by the seller but discovered by the buyer often spell disaster for purchase contracts. Home inspection issues have always been among the top reasons for contract termination. Some months, we’ve seen them amount to fully one-third of all contract terminations. Right now, we’re inspections responsible for 7% of contract delays and 8% of contract terminations.
What this Means for Home Buyers
Before you invest your hard-earned down payment on a property, make sure you know exactly what you’re getting. Schedule a home inspection, pest inspection, and any other reviews of the property that may be necessary. These inspections will be your responsibility during closing cost discussions unless otherwise negotiated.
What this Means for Home Sellers
If you can, fixing potential issues before putting your house on the market can solve many problems before your buyer ever sees them. Being proactive can also save you money. By solving issues on your own time and budget, you can spare yourself the funds required by demanding buyers who may prefer more costly repairs, or who may terminate their contract if not completed.
4. Titles and Deeds
When you buy a property, the previous owner conveys the title to you as evidence of your full legal ownership. Occasionally, a hidden defect in the title or a mistake in a prior deed, will, or mortgage may give someone else a legal claim against your property.
When there is an unaddressed judgement or payoff connected to a property, it can lead to contract delays or terminations. While this doesn’t happen in a large percentage of real estate contracts, we are seeing it as the cause for 8% of contract delays and 4% of contract terminations.
What this Means for Home Buyers
There is little you can do to close on time when a seller is dealing with title issues. However, you can protect yourself against similar issues when you eventually sell your home. Title insurance protects against loss or damage resulting from defects that affect the title to your home. If a claim is made against the property, title insurance can save you time and money by covering legal expenses and any claims that arise from issues prior to your ownership.
What this Means for Home Sellers
Before you list your home, do your research and make sure there are no judgements against your property that you are unaware of. If you have trouble clearing your title while your home is already under contract, it may cause serious delays to your closing. If the buyer can’t wait through those delays, he or she may end up terminating the contract.
We Can Help Make Sure Your Contracts do not Fall Apart
There can be many reasons a contract will stall or fall apart completely. Regardless of whether you are buying or selling, having a professional real estate agent at your side is the best way to ensure you close on time.
Your EXP agent works directly with you to make sure deadlines are met, documents are distributed, and all details are accounted for. Our proactive management and attention to detail will help ensure your home sale or purchase is efficient and seamless.
All real estate is local. In order to make confident real estate decisions, we believe it is important for you to have timely and neighborhood-specific information. If you would like more information about buying a home in NC, our experts at EXP Realty are here to help. Contact us today to speak with a EXP agent about buying homes or land in North Carolina.