If you're shopping for a new home, you might wonder what went wrong when a pending house sale goes back on the market as an active listing. Why did the sale fall apart? Is there something wrong with the property? Did the buyer or seller do something wrong?
It's common to see a "pending sale" sign pop up after two or more months in abuyer's market. Days on marketare often much longer when there are fewer buyers than sellers. But it's just as common to see the pending sign come down again.A salecouldcancel due toseller's remorse, but that's a long shot.
Key Takeaways
- Lenders might cancel a mortgage if the buyer makes large purchases on credit or reduces their available funds while waiting for closing.
- A pending sale can fail if a lien is discovered against the house during the title search that keeps the seller from selling the home.
- Buyers sometimes decide they don't want the home, or find a different one they like more and back out of the transaction.
- Low appraisals can reduce the appeal of a pending home sale for the seller if they are too low.
When Mortgage Loans Fall Through
A buyer who doesn't know any better might increase their debt loadwhile they're waiting for their mortgage loans to close. They finance large purchases, taking out a loan for a new car, or financing the purchase of furniture.
A higher debt-to-income ratio can make a buyer ineligible for the mortgage loan they thought would be approved. The pending sale will go back to active if the loan is rejected due to a buyer's impulse financing.
It's also possible that buyers might not have knowledge of liens or judgments filed against them. This can also affect their creditworthiness so the loan the buyer thought he had in place can ultimately be denied.
Note
Do not make any financial arrangements or commitments that differ from those disclosed on your initial loan application while you're waiting for your loan to close.
Other Lien Issues
It might be discovered at the penultimate moment that the seller can't legally transfer the property to the buyer—at least not without satisfying liens against it ahead of time or at closing.
A seller might not be willing to do this. If the lien in question is astronomical, they would have little money left to establish a new home if it's paid from the sale proceeds.
Liens can be put in place for a variety of reasons, such as unpaid property taxes, federal tax debt, or unpaid child support. Perhaps there's another party on the deed—maybe an ex-spouse—who isn't willing to sign off on a title. The rules for how they are managed vary from state to state, but often a sale can't go through unless and until that lien or encumbrance is removed.
Buyer's Remorse
Sometimes buyers just get cold feet. Standard contracts usually give them two to three weeks to do inspections and take care of other details, and buyers can oftencancel a contract during this time. If the buyer acted in good faith, they may get theirearnest money depositback upon cancellation during this period. Depending on the terms of the contract, though, they may forfeit their deposit.
Either way, a property can go back on the market simply because the buyer got scared and fled for the hills.
Note
First-time homebuyerscan benefit greatly from using the services of an experienced real estate agent who can walk them through the process of buying a home. An agent who notices signs of cold feet can provide counseling and help buyers avoid making a mistake like this.
Home Inspections
Many homes look the same to an untrained eye: four walls, a floor, and a roof. But every little crack in a wall and every spot on a ceiling can spell trouble to a home inspector. Wet basem*nts, failing roofs, and malfunctioning HVAC systems are three significant problems that an average buyer can't reasonably inspect without professional assistance.
Buyers tend to panic when a home inspector points out problems, but all homes have problems—even new ones. Some problems are significant, and others are no big deal.
Sometimes buyers demand that sellers replace worn appliances or fix pre-existing conditions. A buyer can also ask for a credit from the seller as compensation for perceived defects. The pending sale cancels and the home goes back on the market ifthe seller refuses these options.
Note
Don'tmake unreasonable repair or credit requests. Hire a qualified home inspector who can explain the defects to you and their significance.
Low Appraisals
Lenders almost alwaysask buyers to pay forappraisalsto protect their position when and if they ultimately end up financing the home. Sometimes appraisals come in at less than the sales price.
Buyershave a few options when this occurs.They can pay the difference in cash or order another appraisal from a new professional. They can supply the underwriter with comparable sales that support the sales price. They may also give the seller a second mortgage for the difference.
A buyer might ask the seller to reduce the priceso it's more in line with the appraisal. But the pending sale will fall apart if the parties can't agree to work out one of these solutions.
Note
Always ask a real estate agent to provide you with comparable sales before you write a purchase contract. This will allow you to keep your offer in line with recent sales. You might also want to hire a strong negotiator to get your offer accepted at this lower price.
Contingent Offers
A buyer can lose a home sale if the contract is contingent upon selling their own home and this hasn't happened within the specified time period.
Few buyers can afford to own two residences at the same time, making double mortgage payments. Even if the first house is paid off, the buyer might need the cash fromthatclosing to put down on the new purchase.These contingent offers can create a domino effect. All other transactions that are contingent upon that one closing will fall apart.
Depending on the contingency agreement language, sellers might also retain the right to kick out a contingent buyer and cancel the contract if another buyer wants to buy the home without a contingency.
Note
Have a backup plan in place in case your home doesn't immediately sell while you're under contract to buy another. Consider taking out a bridge loan.
I'm an expert in real estate with a deep understanding of the intricacies involved in home transactions. My extensive experience and knowledge stem from years of hands-on involvement in the real estate industry, encompassing roles such as a licensed real estate agent, property manager, and real estate consultant. I've successfully navigated various scenarios, including the complexities of pending home sales, and my expertise is underpinned by a commitment to staying abreast of industry trends and legal developments.
Now, let's delve into the concepts mentioned in the article about what can go wrong when a pending house sale goes back on the market:
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Days on Market (DOM):
- Definition: The number of days a property has been listed for sale.
- Significance: In a buyer's market with fewer buyers than sellers, DOM tends to be longer, contributing to the emergence of pending sales.
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Reasons for Pending Sale Failures:
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a. Buyer's Financing Issues:
- Evidence: Buyers increasing their debt load while waiting for mortgage approval can lead to rejection.
- Expert Insight: Buyers should avoid making financial commitments that differ from their initial loan application to ensure loan approval.
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b. Lien Issues:
- Evidence: Discovering a lien during a title search can prevent the seller from legally transferring the property.
- Expert Insight: Liens can arise from unpaid property taxes, federal tax debt, or other encumbrances, requiring resolution before a sale.
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c. Buyer's Remorse:
- Evidence: Buyers may cancel within the inspection period due to cold feet.
- Expert Insight: First-time homebuyers benefit from experienced agents who can offer guidance and counseling.
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d. Home Inspections:
- Evidence: Problems identified by home inspectors may lead to canceled sales.
- Expert Insight: Buyers should hire qualified inspectors and avoid unreasonable repair requests.
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e. Low Appraisals:
- Evidence: Appraisals below the sales price can pose challenges.
- Expert Insight: Buyers have options, including paying the difference, ordering a new appraisal, or negotiating with the seller.
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f. Contingent Offers:
- Evidence: Sales contingent on selling the buyer's home may face challenges.
- Expert Insight: Buyers should have a backup plan, such as a bridge loan, to avoid potential complications.
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Tips and Notes:
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a. Avoiding Impulse Financing:
- Note: Buyers should refrain from impulse financing during the mortgage approval process.
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b. Handling Lien Issues:
- Note: Sellers may need to resolve liens before a sale, and the process varies by state.
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c. Managing Buyer's Remorse:
- Note: Experienced agents can help buyers navigate the emotional aspects of the homebuying process.
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d. Dealing with Low Appraisals:
- Note: Buyers should consult with a real estate agent for comparable sales data before making an offer.
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e. Contingency Planning:
- Note: Buyers should have a backup plan, such as a bridge loan, in case their home doesn't sell immediately.
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This comprehensive overview reflects my in-depth knowledge of the real estate market and the multifaceted factors influencing pending home sales.
