If you have ever bought a home, you know that it can be nerve wracking. There are certain steps along the way to buying (or selling) a home that are more likely than others to cause a deal to fall apart. As realtors we are here to help guide clients through these obstacles and to help keep you calm and low stress along the way. There are four areas that are more vulnerable to a contract falling apart than others. I'll talk about them here.
Contract Getting Accepted. Let's pause for a moment and talk about today's environment. Houses that are decent and priced right are being listed and multiple contracts received in a matter of days. We are seeing it constantly. Although not a contract falling apart, but certainly can be just as frustrating is when the offers you are presenting aren't being accepted time and time again. It's important to work with an agent that has experience in multiple offer situations. There are things that can be included in the offer you make it stronger. Some examples include a shorter home inspection period, willingness for appraisal to come in lower than sales price and buyer to pay the difference, or closing that matches what the seller wants.
Home Inspection. The home inspection period is where the buyer can look closer at the house and bring in experts to inspect the house for any flaws. It is during this time any items of concern can be brought up to the seller and pricing or repairs negotiated. It is also during this time that a buyer can walk away from purchasing the home with no penalty. The home inspectors we recommend take about four hours to review a house. During this inspection they will find things wrong! It is a matter of if the issues are major issues or minor issues. If safety concerns exist we will usually recommend the seller address. It is during this time that contracts can fall apart. As a buyer you don't want to sweat the small stuff. For both buyer and seller it is super important to have a power negotiator on your side, one that will look out for your interests but also not let you be in the way of yourself. The goal in this process is to sell or buy a house at terms everyone can agree with.
Appraisal. The third place contracts can fall apart is at time of appraisal. This is where an objective third party says what the house is worth based on sales of other similar, near by houses. A bank will not approve a loan if the appraiser doesn't say the house is worth the purchase price. They want to know the collateral being used for the loan (the house) is worth the amount being spent. When a house does not appraise, there are a few options. First the seller can lower the price to match the appraisal price. Second, the buyer can pay the difference in cash at time of closing. Third, the buyer and seller can meet somewhere in the middle. Forth and least favorable, the buyer can cancel the contract. Again in this situation, it is important to have an experienced negotiator on your side. The goal again is to have a meeting of the minds where both parties are comfortable with the decision. It is important to note that once a house appraises for less than the sale amount, the seller will have a very hard time selling at that higher advertised price. Especially with an FHA loan, that appraisal will stay with the property for 120 days! If the next purchaser is also using an FHA loan, the next lender won't even request a new appraisal, they will use that same one for the same amount.
Loan Approval. This is the final area most contracts will fall apart. When a home is being purchased with a loan, the buyer may have gone through pre-approval just fine, but it is when the loan application goes through a closer examination (called under writing) that there could be issues. Things discovered during under writing could include (but are not limited to) a new major purchase, change in credit score, more reliance on credit and therefore a higher monthly fee. Anything that changes your credit score or monthly payments or monthly income is potentially an issue. A good loan officer will try to address any of these potential issues ahead of time to get any extra documentation needed ahead of time. However it is super important you do your part. Don't start using other credit cards. Don't buy or lease a car. Don't change jobs or do anything that allows your income to go down. Don't miss any payments for anything you are already paying consistently. Of course loosing a job can be out of your control, but the others aren't. NOTHING should be done to change your credit score, income, or payments without the approval of the loan offers that pre-approved you. If the loan can't be approved, there isn't much that can be changed at this point. Sometimes the sale can be delays and another broker might be able to help. I cannot stress how important it is to not make any of these changes without guidance from the loan officer that pre-approved you. For sellers, it is important that you work with an agent that is in constant communication with the buyer's agent and buyer's lender to make sure there aren't any surprises that creep up. Loan approval usually happens closer to closing day. The last thing you want to happen is to have to go back on the market after you have already started packing and are ready to move out!
There are other times that contracts can fall apart, but they are much more few and far between. They are truly exceptions. We have found that the majority of the time, contracts will be cancelled during the times we have mentioned here. We are here to help you navigate this process. Please let us know what questions you have. If you have any horror stories we would like to hear those too.