I’m gearing up to do monthly statistics on how the real estate market is doing on Seattle’s eastside. Every month I report on how many homes have sold and I also mention how many real estate sales have failed. Contracts on homes close all the time, but there’s always a certain number each month that don’t close. There are many reasons why this can happen.
Here are 7 of the top reasons home sales fail to close:
Buyer rejects the seller’s disclosure form. The disclosure form, form 17, is a 5 page document delivered to the buyer no later than 3 days after a purchase and sale agreement (the contract) is mutually agreed upon by both parties. The buyer has 3 business days to review the form. The disclosure form covers many issues about the home, including defects, remodeling, permits, whether the home is on septic or sewer and hooked up to public water or on a well. If the buyer disapproves of anything in the form, the buyer has the right to terminate the purchase and sale agreement.
The inspection falls through. Inspections fall through because there’s something structurally wrong with the house. The structural problem can’t be fixed, the seller refuses to fix it or the buyer no longer wants to buy the home because of the problem. Sometimes the repairs requested can be remedied, but the buyer and seller don’t come to agreement on which repairs will be done or how to do the repairs. The buyer can also terminate a contract based on the inspection without giving a reason to the seller.
The buyer walks over neighborhood review. Some offers include a clause giving the buyer an opportunity to check out schools, crime, views, and other neighborhood issues in the 3 business days after an offer is signed. If the buyer finds something they don’t like about the neighborhood, they can terminate the agreement and walk away.
Good old fashioned buyer’s remorse. Buyers get cold feet and decide not to buy the home. Buyers have the right to serve the seller a termination notice, get their earnest money returned, and continue to look for a home without giving the seller a specific reason. This can happen only during specific times outlined in the contract. For example, the buyer can simply terminate the contract during a neighborhood review or the review of the disclosure form.
A low appraisal on the home. The home sells for $500,000, but the bank appraiser says the home is only worth $485,000. The seller doesn’t agree to the lower purchase price to the appraisal price, so the buyer can choose not to buy the home.
Running up a credit card bill. The buyer buys a new car before closing the sale on the new house, running up a credit card bill. Incurring more debt before closing can mean the buyer no longer qualifies for the loan.
Death of a buyer or seller. I recently heard of this happening in a sale on the eastside. It happened during one of my closings a few years ago. The seller passed away during the closing period. Luckily, the heirs saw the sale through. Heirs can contest a sale if it’s in process.
It sounds pretty daunting when you read this list, but the reality is most months only 1 or 2% of the home sales fail to close. Clearly, the majority of homes that sell go all the way to the closing table.
By the way, each state has different contracts with different clauses, so what happens in Washington State real estate contracts stays in Washington State. This post is not legal advice. If you have questions or concerns about real estate contracts, you should consult an attorney.
What are some of the other reasons home purchases fail to close? There are many more reasons out there. Do you know of some unique situations that caused real estate sales to fail?