Forewarned Is Forearmed
Buying a house is a major milestone for most people. After the weeks, months, or even years of preparation, a buyer wants to cross the finish line with confidence. Buyers and sellers alike need to know what glitches come up most, and how to avert these issues.
Let’s look at six very common (and possibly avoidable) types of eleventh-hour home purchase fumbles.
1. The Inspection Uncovers Dealbreakers
It’s not unusual to get a hair’s breadth from the closing table when a report from the home inspector throws the deal off.
No home is absolutely perfect. But there is a difference between straightforward fixes and complicated problems. Where the issues are serious, the buyer may have no sensible choice but to point to an inspection contingency in the purchase agreement. The deal may be salvageable, though, depending on the seller’s position. Can the seller make concessions to cover the costs of necessary repairs — or swing into action and have the repairs done?
The most serious items are things like evidence of repeated flooding; out-of-code electrical wiring; unpermitted or non-compliant home upgrades and additions (which could also turn up during the title search); toxins in the home; an HVAC system, insulation, or roof in immediate need of replacement; cracks in the trunk line under the flooring; or tree roots invading a sewer line. These are only a few examples of material issues that can show up in the inspection.
Sometimes the seller knows of an issue, but figures in a seller’s market anything goes. Anything does not go. That’s why it’s important for both buyers and sellers to have agents who take their professional responsibility seriously.
Big issues typically involve older homes. New construction generally avoids negative inspection reports — but not always! No matter if you’re buying an old house or new construction, have a backup plan in case an unexpected surprise turns up with your first purchase choice.
Note to sellers: Consider getting an inspection before having your home listed. Address the issues, or have a plan to disclose the matter and compensate the buyer up front.
2. The Appraisal Falls Short
Now and then, a house appraisal falls short of what the buyer, real estate agent, and mortgage consultant thought it was worth. This can make the lender withhold final approval for the mortgage. Can this hurdle be overcome?
There are two potential ways forward. The buyer can point to the purchase agreement’s appraisal contingency and negotiate for a discount or upgrades, so a new appraisal would better match the price. Otherwise, the buyer will need to come up with the cash to make up for the difference.
Appraisers are allowed some leeway to align a valuation of the home with the purchase agreement. But if the agreed-upon sale price has seriously overshot the home’s value, there will be a mismatch, and a deal can fall apart entirely. In any case, an appraisal contingency is a vital part of a purchase contract. Buyers, take note.
3. The Buyer’s Inability to Sell a Currently Owned House Triggers the Home Sale Contingency
A buyer could need to sell a current home before closing on a new one. Buyers in this position usually make an offer that includes a home sale contingency. This means the buyer can back out if the current home fails to sell promptly. This can, of course, delay the transaction for the new purchase.
☛ How is it possible to buy a home while selling the one you own at the same time? Learn more about accounting for this need in your purchase contract, and other strategies.
Even in a seller’s market, there can be problems with a hopeful home buyer’s current house. For just one example, a buyer might be trying to sell a current home that has a renter in it. It’s important to ensure that renters really do vacate the house before a transaction is underway.
4. The Buyer Runs Into a Financing Hitch
Some buyers have a thin margin of funding and get into a bind when awaiting the results of the loan underwriting process. To prevent a surprise mortgage rejection at the eleventh hour, the buyer should be extremely careful with credit and bank accounts. Mortgage applicants are well advised to speak with the mortgage consultant before applying for credit, or spending money in a way that could throw off their debt-to-income ratio.
Not every financial emergency can be foreseen, of course. Buyers can lose jobs, or run into health or relationship issues. But there are preventable problems that buyers can take care to avert.
Pro tip: A buyer in a hot market can ask the mortgage specialist to press beyond pre-approval. Request a letter from the underwriter (“pre-underwriting”) for a fuller assurance that the loan will go through.
5. Title And Closing Issues Hold Up the Deal
In any home transaction involving a lender, the title search could expose a lien on the property that the seller didn’t know about. If the lien is easy enough to pay off, the buyer can pay it from escrow and the money can be returned to the account from the seller’s proceeds at closing. Sometimes a more serious title issue crops up, preventing the seller from going through with closing. An heir’s interest in the home could appear, for example.
Common problems can also involve a bankruptcy in the history of the home, expired liens lingering in the county record, or easements on the property that the seller didn’t know were there.
Issues like these can even arise after closing. This is why title insurance matters.
☛ When you buy a home, you pay for title insurance to benefit the lender. Here’s why a buyer should buy an owner’s title policy, too.
6. Missed Deadlines Jeopardize Closing
All of these can be reasons for sellers to end the pending deal, and put the home back on the market:
- The final mortgage approval is late.
- An appraisal isn’t carried out or signed off by the real estate agent.
- The real estate agent doesn’t make sure the closing documents are ready on time.
These delays mean closing cannot happen. And once the deadline in the parties’ purchase agreement passes, the seller may back out to find another buyer.
Real Estate Agents Save Deals
A few other things can crop up. If there is a homeowners’ association (HOA) for the development, something in the association’s governing documents or financial status could turn out to make the deal a no-go. Pending lawsuits (against an HOA, a seller, or a buyer) can also scuttle deals. Buyers must do their research before getting into a purchase agreement — and develop a backup plan as they shop for homes.
Local real estate agents with experience and sound professional ethics can help guide buyers away from potential pitfalls. Most deals do have a few twists and turns and challenges. Yet the garden-variety glitch can likely be worked out. A hat tip to the dedicated real estate agents and other professionals who work hard to make good deals happen every day!
Prendamano Real Estate, via PreReal.com: Six Most Common Reasons Real Estate Deals Fall Through (Apr. 3, 2020).
MathisTitle.com: Common Reasons Real Estate Deals Don’t Work Out (Nov. 8, 2021).
Deeds.com: Navigating the Home Appraisal: A Buyer’s Guide (Jun. 9, 2021).