My Home Is Under Contract, What Could Possibly Go Wrong?

If you are a home buyer or a seller there is nothing more frustrating than having a home sale fall through and go back to the hard work of searching and viewing, or marketing a home that may be seen as damaged goods.   Here are some issues that arise during contract that are often the cause of a sale falling through.

Inspection

First step for many home buyers once a home is under contract is to have an inspection done by a licensed home inspector.  This may be a general inspection only, but could also include more specialist inspections such as pool, security system, septic system or Wood Destroying Organisms.  If it’s an As Is contract with an inspection contingency, the buyer has 3 options with issues found during inspection:

Negotiate with the Seller on repairs – Seller does the repairs and pays for them, Seller does the repairs and the cost is split with the buyer at closing, Seller does the repairs and Buyer reimburses the cost at closing.  

Do Nothing – typically an inspection will identify several minor issues such as dripping faucets, a door that catches when being closed, a torn screen on a window.  Often buyers will just move forward with a note to do some maintenance in the future, rather than risk a deal falling through over minor issues.

Walk away – if the issues are serious enough or if the Buyer and Seller cannot agree on who pays for what, the buyer can terminate the contract and keep their deposit if still in the contingency period.

If the Buyer walks away, the Seller will still have to address any major issues for the next buyer and disclose the issues when they go back on the market.  In a Buyer’s market, Sellers will sometimes have an inspection done before they list and deal with issues outside of a negotiation – at around $350, this may be a good option for avoiding issues that could sink a deal.

2. Financing

Even if a buyer is pre-approved, financing can fall through.  In the few weeks it takes from contract to close, a Buyer’s circumstances can change – they could lose or change job or their credit score could decline or they cannot meet the contingencies the lender has given.  Additionally, lenders have requirements for condo purchases and will look at the proportion of renters to owner occupiers in the building and also the financials, including reserves. If a condo building is not meeting their financial reserve requirements,  has a large proportion of renters or has outstanding litigation against it lenders will be less likely to lend against it.

Banks will go through financial checks right up to closing, so until the Clear to Close is issued by the lender, financing is not a done deal.

3.  Appraisal

Appraisals are always required by lenders to they ensure the loan does not exceed the value of the home.  Cash buyers will often also have an appraisal done as well.  If the appraisal comes back as less than the contract amount, there are really 3 options

a) Buyer and Seller negotiate a price equal to the appraised value, this is a valid option whether there is a lender involved or not

b) If the purchased is being financed, then the Buyer may be able to bring more cash to the close to keep the loan to value ratio the same for the lender

c) The Buyer can terminate the contract and keep their deposit if they are within the Financing or Appraisal contingencies.  

4.  Survey Issues

A lender will always require a survey to be done for a single family home.  Typical issues that come up are identification of an easement that the Seller didn’t disclose, or possibly a structure that has been built partly on the Seller’s land.  A utilities easement may not be a big deal but a public footpath running across the land or the Seller’s fence built on a public right of way just outside the lot line, may be big issues.  Likewise if a neighbor has built a structure overlapping the Seller’s lot, such as a shed or a fence, this may be an issue to be resolved before close or the deal could fall apart.

5. Title Search Issues

Depending on the history of the property, it’s possible there could be title issues.  These may range from the current owner not having secured the correct title after purchasing at an auction or from a family member or friend, to there being outstanding liens against the property.  Liens could have been imposed by the city related to violations, by the courts in relation to a debt, by the IRS or by a contractor who was not paid for service delivered on the property.  All buyers will require clean title when purchasing a home, and if issues are found late in the process close date could be delayed while the the issues are being resolved or if a Buyer is not willing to wait, could result in termination. If a Seller has any questions about whether they really have a clean and warrantable title, then it’s best to consult with an attorney or title company early in the process.

6. Condos

Florida statutes require the Seller of a condo to provide documentation, including the current copy of the declaration of condominium, articles of incorporation, bylaws and rules of the association, and a copy of the most recent year-end financial information and frequently asked questions and answers document.  The Buyer has 3 days to review during which time they have the option to terminate the contract.

7.  Buyer’s Remorse

Occasionally a Buyer will just walk away from a contract, even if it means losing their deposit.  I’ve had a case where I was the listing agent for a condo on the waterfront and the buyer just walked away right before close, stating that after a lot of thought they just didn’t want to live in a condo.  

 

A lot can go wrong to derail a home sale and purchase even after contract.  When it does, the Seller is facing putting the home back on the market, possibly with some real issues that have to be disclosed or fixed, and having to deal with the market perception of damaged goods.  The Buyer has to go back to searching for a home online and then spending hours viewing properties and starting the process again when they find a home that they like, they could also be out hundred of dollars after paying for inspections, etc.    

This insight into what could go wrong should help you as a Buyer or a Seller be prepared for some of the challenges and hopefully head them off before they result in contract termination.

As ever if you are looking to buy or sell real estate in St Pete, St Pete Beach, Treasure Island, Madeira Beach, Seminole, Largo or Safety Harbor areas then contact me first.  727.401.5997