Why Do Buyers Back Out in Real Estate

Completing a successful real estate transaction is difficult, regardless of how experienced someone is regarding buying or selling homes. It takes several moving parts coming together at the right time to get a deal to the finish line. A handful of buyers back out of deals every day. Knowing the reasons a buyer might back out of your transaction may better prepare you to avoid the cancellation altogether.

In this article, we’ll answer the question of “Why do buyers back out in real estate transactions?” We’ll also explore some tactics for preventing this from occurring. With the help of Happy Home Legacy, you’ll understand what you need to ensure to sell your home.

Contract Contingencies

Even when you have a signed contract you still need the inspection, appraisal, insurance, and closing to go off without a hitch. All it takes is one person dropping the ball or one surprise to bring the process to a halt. It’s pretty common for people to ask, “Can a seller back out after inspections and papers have been signed?” Real estate professionals are paid to navigate an efficient sale, and part of this is protecting both parties from a bad deal and walking away if property conditions or transaction details have been compromised.

There are countless reasons why a buyer may back out of a real estate transaction, which is why contracts are written to provide thorough communication of the expectations of the seller. When asking “Why do buyers back out in a real estate sale?” it’s typically for one of these contract contingencies:

  • Property needs to pass inspections
  • The buyer needs to be approved for financing
  • The buyer needs to sell their existing home
  • The property appraised at a fair value

Why Do Buyers Back Out?

Now that we understand a few of the reasons why buyers back out in real estate transactions, let’s dive deeper into what some of the complications can look like during the sale process.

Financing Issues

There is a huge difference between a pre-qualification and a pre-approval. Most lenders or mortgage companies will issue a pre-qualification letter after reviewing the credit report and taking verbal information on income, assets, and employment. This will provide a snapshot of creditworthiness but doesn’t dive into specifics. It is only when the loan is submitted to the bank and underwriting reviews the tax return, W2, bank statement, and credit report that a buyer will know their true financial standing.

The borrower may have received a portion of the down payment as a gift. There may be items deducted on the paycheck that reduce the net usable income. There are truly several financing items that could be a potential problem, especially if the buyer is self-employed. There is also the issue of the appraisal. The value must justify the purchase price with comps that match the property. The buyer and seller may agree on a price, but if the lender values the property at a lesser value than the purchase price, all parties in the transaction may have to deal with a reduction in price, a new appraisal, the buyer bringing extra funds to the closing table, or the buyer walking away altogether.

Concurrent Closing Fails

Many people looking to purchase a new home are doing so while their current one is on the market. As we’re discovering, the buyer’s concurrent real estate transaction might fall through at any time, for any of these reasons we’ll explore. Many buyers will use the funds from their original home’s sale to finance their future home’s purchase. If the buyer’s concurrent closing falls through, it’s very natural for them to need to postpone the real estate transaction or back out from moving forward entirely.

Overwhelming Home Inspections

Unless a buyer is paying cash or removing their physical contingencies upfront, the very first step in the post-offer acceptance process is typically the home inspection. As a buyer, there is comfort in knowing that their inspector is going to scrutinize every inch of the property searching for potential defects. While this may be assuring for the buyer, it may also create potential problems with the transactions and become a headache for the seller.

After the inspection, a complete detailed list of findings is provided by the inspector. There may be items that the seller previously had no idea about or repairs that were unclear to the naked eye. Either way, after receiving the report the buyer must assess whether the cost of repairs is truly reflected in the price. In most cases, the seller will opt to fix any minor updates either before the transaction or issue a credit at closing. However, if the items are severe and cost-prohibitive, the buyer can opt to walk away and not deal with the headache.

How Often Do Buyers Back Out After Inspection?

So can a buyer back out after the inspection? Absolutely. Especially if there is a property inspection contingency within the purchase agreement. There are many deals lost after this step alone because the main job of an inspector is to find flaws with the property. According to Trulia, home sales fall through about 3.9% of the time, with house inspections playing a role within this rate. It’s fair for a buyer to want to avoid being legally bound to purchase a home if there are significant issues prevalent. For sellers looking to prevent this from complicating the sale, it’s highly recommended to get your home inspected and appraised once you’ve decided to place the home on the market. This allows sellers to be aware of anything they could fix before showings and can provide buyers with a transparent idea of what the property is worth.

More Desirable Alternatives

It is easy to think that the buyer for your property is head over heels with it and views it as their dream house. In many markets, the reality may tell a different tale. It is not uncommon for buyers to send out multiple offers on different properties with the hopes of getting an offer accepted. Even when an offer is accepted it does not mean they stop looking. Unless there is a massive earnest money deposit with buyer’s contingencies removed upfront, they may be able to walk away if they find a property they like more while risking little.

Why do buyers back out? Possibly the most frustrating for sellers is due to the buyer still looking at other options. Buyers can use their contractual contingencies or “lack of financing” to back out of a deal without breaking the contract. This can waste days or even weeks of time and can leave the seller needing to start the process over from scratch. The best way to deter “shotgun” bidders is to increase the earnest money deposit. This means that they will have more to lose if they walk away, and they will be less likely to bid on properties they don’t really want.

Cold Feet

Anyone who has ever bought a home before knows it is a tiresome process. Not only is the amount of paperwork and documentation overwhelming, but it is also a huge emotional commitment. From the time you even consider looking for a home up until the day of the closing it can be a giant roller coaster of emotions. These feelings are there in normal times, they are even more ramped up with a global pandemic and employment uncertainty. Even with interest rates near all-time lows, knowing that you will be on the hook for a mortgage payment for the next 30 years can cause “cold feet” or even buyer remorse.

All this uncertainty, commitment, stress, and obligation can overwhelm a buyer, who often relieves these emotions by canceling the deal and revoking their offer. Up until the time the closing paperwork is signed closing funds have been wired, and the deal is done, nothing is official. To avoid your buyer from feeling buyer’s remorse and getting cold feet, make sure that the appraisal and contracting process is a smooth one. This will ensure buyers they are making a great choice, have no need to look at other options, and provide them peace of mind regarding one of life’s biggest purchases.

Prevent Buyers Backing Out with the Help of Happy Home Legacy!

When placing your home on the market, it’s smart to premeditatively ask “How often do buyers back out after inspections and contracts have been created?” Having a buyer back out of a deal is an unfortunate and potentially damaging aspect of selling a home. That is why it is critical to consider the strength of offer terms and properly communicate with buyers. This allows you to choose a buyer with a great track record rather than simply choosing a buyer that claims they will pay the highest price.

Decrease the chances of buyers backing out by listening to your real estate agent, increasing your earnest money deposit, and compromising when needed after the inspection. Keep an eye out for other red flags in the offers you do receive and use these main answers to “Why do buyers back out of real estate transactions?” to better prepare yourself for the sale of your next home. Happy Home Legacy has the expertise and know-how to help expedite the sale of your home. Contact us today to learn more about our cash offers!

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