Why Do Buyers Back Out At Closing

No matter how much expertise someone has with buying or selling property, it is hard to complete a good real estate deal. To get a deal done, a lot of things have to happen at the same time. Every day, a few purchasers back out of deals. If you know why a buyer might back out of your deal, you might be better able to stop it from happening.

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Conditions of the Contract

You still need the inspection, appraisal, insurance, and closing to go smoothly, even if you have a signed contract. The process can stop at any time if only one person drops the ball or there is a surprise. People sometimes question, “Can a seller back out after the papers have been signed and the inspections have been done?” Real estate agents get paid to help people sell their homes quickly and safely. Part of this includes making sure that both parties are protected against a bad bargain and leaving if the property or the circumstances of the arrangement change.

There are a lot of reasons why a buyer can back out of a real estate deal, which is why contracts are drafted to make sure the seller’s expectations are clear. When people wonder, “Why do buyers back out of a real estate sale?” it’s usually because of one of these contract contingencies:

Inspections must be passed by the property.
The buyer needs to get permission to get a loan.
The buyer has to sell their current home.
The property was valued fairly.

Why Do Buyers Change Their Minds?

Now that we know a few reasons why purchasers back out of real estate deals, let’s look more closely at what some of the problems can look like during the sale process.

Problems With Financing

A pre-qualification and a pre-approval are very different things. After looking at your credit report and talking to you about your income, assets, and job, most lenders or mortgage companies will send you a pre-qualification letter. This will give you a general idea of someone’s creditworthiness, but it won’t go into detail. The buyer won’t know their real financial situation until the loan is sent to the bank and underwriting looks over the tax return, W2, bank statement, and credit report.

The borrower may have gotten some of the down payment as a gift. Some things may be taken out of the paycheck that lower the net useable income. There are a lot of financing things that could be a concern, especially if the buyer is self-employed. The appraisal is another thing to think about. The value must be equal to or more than the purchase price, and the comps must be similar to the property. The buyer and seller may agree on a price, but if the lender thinks the property is worth less than the purchase price, everyone involved in the deal may have to deal with a lower price, a new appraisal, the buyer bringing more money to the closing table, or the buyer walking away completely.

Concurrent Closing Doesn’t Work

A lot of folks who want to buy a new house are doing it while their old one is still for sale. As we learn more, the buyer’s present real estate deal could fall through at any time for any of the reasons we’ll talk about. A lot of people will utilize the money they get from selling their old home to buy a new one. It’s fairly normal for the buyer to have to put off the real estate deal or back out of pushing forward completely if their contemporaneous closing falls through.

Home Inspections

The house inspection is usually the first stage in the process once an offer is accepted, unless the buyer is paying cash or taking care of their physical contingencies right away. As a buyer, it makes you feel better to know that the inspector will look at every inch of the property for possible problems. This may be good for the buyer, but it could also cause problems with the transactions and make things hard for the seller.

The inspector gives a full, detailed record of their findings after the examination. There could be things that the seller didn’t know about before or repairs that weren’t obvious at first glance. In either case, the buyer must check to see if the price really reflects the cost of repairs after getting the report. In most circumstances, the seller will choose to correct any small issues before the sale or give the buyer a credit at closing. But if the problems are too bad and too expensive, the buyer can choose to walk away and not deal with the hassle.

Changing Minds

So, is it possible for a buyer to back out after the inspection? Of course. This is especially true if the purchase agreement incorporates a property inspection clause. Many deals fall through after this step because the inspector’s main role is to uncover problems with the property. Trulia says that roughly 3.9% of home deals fall through, and house inspections are one of the reasons for this. If there are big problems with the home, it’s legitimate for a buyer to wish to avoid being legally obligated to buy it. If you want to avoid this making the sale more difficult, it’s a good idea to get your home examined and appraised before you put it on the market. This lets sellers know what they can repair before showings and gives purchasers a clear notion of what the property is worth.

Better Options

You might imagine that the person who wants to buy your house is crazy about it and sees it as their dream home. In many marketplaces, the truth may be different. Buyers often make many bids on different houses in the hopes that one would be approved. They don’t stop looking even if they accept an offer. The buyer may be able to walk away if they find a property they like more, but they won’t have to worry about losing a lot of money if they do.

Why do buyers change their minds? The fact that the buyer is still looking at other possibilities may be the most annoying thing for sellers. Buyers can pull out of a sale without breaking the contract if they invoke their contractual contingencies or “lack of financing.” This can take days or even weeks, and the seller may have to start the procedure all over again. Increasing the earnest money deposit is the best strategy to stop “shotgun” bids. This means that they will have more to lose if they leave, and they will be less likely to bid on properties they don’t really desire.

Cold Feet

People who have bought a house previously know how tiring it can be. There is a lot of paperwork and documentation to deal with, and it is also a big emotional commitment. From the first moment you think about looking for a home to the day of the closing, your emotions can be all over the place. These feelings are always present, but they are considerably stronger now that there is a global pandemic and job uncertainty. Even though interest rates are at their lowest levels in a long time, the thought of having to make a mortgage payment for the next 30 years can make you get “cold feet” or even regret your purchase.

A buyer can get overwhelmed by all this uncertainty, commitment, worry, and obligation, and they commonly deal with these feelings by canceling the sale and taking back their offer. Nothing is official until the closing paperwork is completed, the closing money have been wired, and the deal is done. Make sure that the appraisal and contracting procedure goes well so that your buyer doesn’t have buyer’s remorse or have cold feet. This will provide consumers piece of mind about one of the biggest purchases they’ll ever make and make sure they know they’re making a good choice.

Craig Cherney is a trusted client advisor and a sought after real estate lawyer and expert witness who is hired by the nation’s top Real Estate Litigation Attorneys to help resolve their litigated real property matters. Craig has appeared as a testifying expert witness before judges and juries in California, Arizona, Nevada and other jurisdictions across the country. Craig Cherney, Esq. Expert Witness Real Estate. 480-399-2342. If you are litigating an easement case, Craig Cherney might be able to help you advance and win your case.