Congratulations! You’ve accepted an offer on your home. But what does that mean? And how close are you to actually closing? While the vast majority of home sales close smoothly and in a timely manner, it’s a good idea to prepare yourself for the possibility that your home sale could fall through.
What does it mean when a house is pending or contingent?
When your real estate listing goes from “active” to “pending,” it means you’ve accepted an offer, but the sale hasn’t closed yet. (You’ll also hear real estate agents use the phrase “under contract” for this post-offer, pre-close time period, too).
During the time your home is pending, a lot of things happen, including the buyer and seller working together with their real estate agents to clear any contingencies. If you see the word “contingent” on your listing, it means that your buyer is working through any contingencies that were a part of their offer — like a financing contingency, home inspection contingency, or buyer home sale contingency. We’ll talk more about these below.
How often does a pending sale fall through?
According to Trulia, 3.9 percent of sales failed in 2016, which is an increase over previous years. That means that the vast majority of sales close, but deals can fall apart for many different reasons.
Reasons why pending home sales fall through
Home inspection contingency
Once a potential home buyer finds a home they love, they’ll typically order an inspection of the property to make sure everything is in good working order. A home inspection contingency allows potential buyers to renegotiate the price or walk away because of items of concern found in the inspection report.
Low appraisal
In seller’s markets where there’s limited housing inventory, bidding wars often raise prices beyond home values. This can lead to financing trouble when the pre-closing appraisal report comes back.
A buyer’s lender won’t finance a home for more than the appraised amount, so the buyer will have to pay the difference in cash, the seller will have to come down on price, or the buyer can walk away.
Buyer remorse
Buying a home is a big decision, and sometimes, potential buyers just change their minds after submitting an offer. They’ll then use one of the contingencies listed below, or another loophole, to cancel their offer.
Keep in mind that almost half of all buyers are first-timers (42 percent, according to the Zillow Group Consumer Housing Trends Report). When faced with one of the biggest financial decisions of their lives, some first-time buyers will simply get cold feet.
Property title issues
Before closing, a buyer’s lender will check to make sure there are no liens for unpaid debts or outstanding financial responsibilities on a property. Major title-related issues can seriously prolong closing — or cause a deal to be canceled overall.
Financing falls through
One of the most common reasons a transaction falls out of escrow is that the buyer’s financing falls through. Typically, if a buyer has been pre-approved, a change in their status, like a difference in employment, new negative credit issue, accrual of additional debts, or a change in lender guidelines can cause the lender to cancel the financing.
You should always check a potential buyer’s financial status before accepting an offer, whether they’re financing or paying cash.
Buyer home sale contingency
In cases where a buyer needs to sell their current home before being able to purchase a new home, they’ll submit an offer with a home sale contingency. This means they can pull their offer if their current home doesn’t sell within a certain time period. And while it may not kill a deal entirely, a buyer home sale contingency can cause your sale to be pending for a very long time.
How to keep a pending sale from falling through
Carefully select the safest offer
If comparing multiple offers, it’s important to think through the pros and cons of each (your real estate agent can be a big help in this area). Consider prioritizing the offers with the fewest contingencies, and beware of high-dollar offers that might not make it past the appraisal.
Avoid buyer home sale contingencies
Some contingencies are harder than others to work past, and if you accept a buyer sale contingency, there’s not much you can do other than sit and wait for your potential buyer to close on their current home.
Complete a pre-inspection
Avoid big surprises in your buyer’s home inspection report by completing a pre-inspection before listing. Then, you can make any important repairs ahead of time and disclose any structural flaws in advance, bypassing stressful and time-consuming re-negotiations.