5 Common Reasons House Contracts Fall Through

5 Common Reasons House Contracts Fall Through

Having a house contract in place is a big win — whether you’re buying the home or selling it.

But don’t celebrate too soon, because that contract is only the first step of many toward finalizing the sale. And in many cases? It could still fall through.

Are you in the throes of buying or selling a house? Want to make sure your transaction stays on track?

Here are five things that can throw a house contract off course

1. Appraisal issues.

If the house is being paid for with a mortgage loan, there’s going to be an appraisal conducted. An appraisal is essentially just a valuation of the home. The appraiser will check out the property, conduct research on the market and recent comparable sales in the area, and determine the home’s worth. 

If they determine the home is worth the price the buyer has offered (or more), then all is well. If the value comes in lower than the buyer’s offer, though? Then there’s a problem.

Mortgage lenders will only loan borrowers up to a home’s appraised value. So if a home’s appraisal comes in at $200,000, but the buyer offered $225,000, that leaves $25,000 unaccounted for. Unless the buyer can make up the difference out of pocket or renegotiate with the seller, they may have to back out of the deal and terminate the contract.

According to the National Association of REALTORS® (NAR), appraisal issues were the No. 1 reason house contracts fell through in February 2021. About 11% of all terminated contracts were due to appraisal problems.

2. Mortgage problems.

Issues with mortgage financing can also cause a sale to fall through. In fact, according to NAR, they’re the No. 2 reason house contracts were terminated in February 2021, accounting for 10% of all terminated contracts.

Here’s the gist of it: If the buyer is unable to get approved for their mortgage loan, they likely won’t have the cash available to buy the property. As long as they had a financing contingency in the contract, they’d be able to back out of the deal and end the contract.

3. The home inspection.

Home inspections are another assessment of the property — this time with the goal of finding any issues or problems that may be at work. If the home inspection reveals repairs are needed, the buyer can ask the seller to complete these before closing on the home. They also might ask the seller for repair credits, which would give them the cash to make the repairs on their own after move-in.

If the sellers won’t agree to either of these solutions, the buyer can either move forward (and just foot the bill for the repairs on their own) or terminate the house contract and find a different property. Home inspections are the No. 3 reason for recently terminated contracts.

4. The buyer can’t sell their old house.

Many homebuyers are also home sellers. When this occurs, it’s common for the buyer to include what’s called a sale contingency in their contract — meaning they want to buy the house, but only if they’re able to sell their current property first. 

If that current property doesn’t sell though? The buyer can back out of the deal unscathed, leaving the seller back at square one. (It’s sort of like a very precarious chain of dominoes. If one contract fails, they all do.)

5. There are problems with the home’s title.

Title issues can also make a deal fall through. In some cases, there may be a lien against the property, which means the seller owes a creditor of some sort and the debt must be cleared before the home can transfer hands. This typically happens if they failed to pay a contractor or repair person or if they have unpaid income or property taxes.

If neither the buyer nor seller is willing to pay these debts off, it could mean terminating the sales contract is necessary.

Another issue that can come up is if the title search reveals another party on the deed — like a former spouse or distant family member. When this is the case, the additional party will need to be willing to sign the title transfer and seller the property. If they can’t be contacted or are unwilling, it could cause the deal to fall through.

How to prevent issues with house contracts

Want to keep your transaction on track and prevent all the above problems? As a seller, the best thing you can do is price your property right, be willing to make repairs (or offer repair credits), and only accept a buyer who’s pre-approved for a mortgage loan.

On the buying end, be careful about going too far above listing price with your offers (it might not appraise), and always come to the table pre-approved for your loan. Embrace’s Approved to Move™ program can help here.

Share this:
By Aly Yale / May 19th, 2021 / Categories: / Tags:

Aly Yale

Aly J. Yale is a freelance writer focusing on real estate, mortgage, and the housing market. Her work has been featured in Forbes, Bankrate, The Motley Fool, Business Insider, The Balance, and more. Prior to freelancing, she served as an editor and reporter for The Dallas Morning News. She graduated from Texas Christian University's Bob Schieffer College of Communication with a major in radio-TV-film and news-editorial journalism. Connect with her at AlyJYale.com or on Twitter at @AlyJwriter.