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  • Writer's pictureErika Gilmore

5 reasons a real estate deal falls through and how to keep it from happening to you

It's a miracle anyone actually buys a new home. When you think about the numerous contingencies in a real estate contract, the odds of a transaction ending with an actual transfer of keys seems almost impossible. There are so many ways either party can legally break a contract, it's almost like lawyers drafted that thing with legal fights (and legal fees) in mind.

Be a follower, not a fighter

So how does a contract fall through, and more importantly, what can you do to prevent that from happening?

First, financing. This is a biggie, because both parties have termination rights. A buyer can terminate the contract if she can not obtain financing for the purchase of the property. Unless, of course she is paying cash. A seller can terminate the contract if the buyer fails to timely provide a lender pre-qualification letter, the identity of the lender, and a loan commitment to the seller. So what can you do to keep that from happening? Most importantly, know your rights and responsibilities under the contract. That means read it thoroughly. As a seller, ask about the financial situation of the buyer before accepting an offer and request that a lender pre-qualification letter accompanies all offers. As the buyer, follow those dates. Send the pre-qualification letter and loan commitment on time. Identify your lender asap. Be proactive to keep the deal moving forward.

Second, appraisal. A lender will want an appraisal before it dishes out the dough. This means an independent third party appraisal will come to the property and assess its value. If the property doesn't appraise for the purchase price stated in the contract, the buyer can terminate. Now the buyer isn't required to terminate, the parties can renegotiate the contract price. But it's better not to give the buyer that option. So what can you do?

  • Get an up to date comparative market analysis from a qualified, experienced realtor in your area. Don't rely on websites like Zillow to set the price. Although it can be a good starting point, it does not give accurate data on your local market. The better you price your home, the more likely it will appraise.

  • Ask the listing agent to provide data to the appraiser prior to the appointment. Make sure to highlight recent sales, updates to the property and any distinguishing features with which an appraiser may not be familiar.

Third, Inspections and tests. The buyer is entitled to conduct all kinds of inspections and tests on the property, and the seller must accommodate those requests. If the buyer is not, in good faith, satisfied with the condition of the property, the buyer can terminate. As with the appraisal, the buyer can elect to negotiate a remedy, which may or may not prove fruitful, again leading to a dead deal. So what can you do? Consider a pre-listing inspection. That way a seller can understand and fix any potential major problems. It may cost a couple hundred buck, but can save you infinitely more in the long run.

Fourth, title problems. Or, "clouds on title" as we lawyers like to call them. How do you know if there is a problem with the title to your property? The buyer will get a title commitment from the seller, who gets it from the title insurance company. If the commitment indicates that title to the property is unmarketable or lists encumbrances, easements, liens that the buyer finds objectionable, the buyer can terminate. How can you prevent this from happening? Although probably not totally preventable, a seller can work with the title company to clear up these encumbrances prior to listing. Any good title company will do a title search for a potential client and work with you to clean up those title defects so a buyer has no reason to object.

Finally, Every Date Matters. For an in depth discussion on contract dates, check out my previous post. But for our purposes here, there are countless ways a contract can be terminated if the dates are not followed. For example, attorney approval, financing, appraisal, inspections, remedy periods, title, earnest money receipt, length of the offer, closing and possession to name a few. Aside from reading the contract and knowing the dates, keep a spreadsheet of those dates, when they are due, who is responsible for them, and mark completed when appropriate. Give the spreadsheet to all parties involved and stay on top of everyone. You may be a follower, but that doesn't mean the 500 other people involved in a transaction are.

Going into contract is just the first of many steps needed to close a deal. Reading the contract, knowing your rights and responsibilities and staying proactive will help the deal flow smoothly to completion. Best of luck.

Peace, love, and real estate,


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