Top Reasons Why Home Sales Fail in 2022
Not every offer that is made on a home for sale results in closing on an official sale. There are several different reasons why a home sale transaction falls apart. Though the number of home sales that never make it to the final signing of paperwork is just a small percentage of all home sales.
In March 2022 the National Association of Realtors reported that only 6% of offers made on homes were terminated. If there is a bump in the road between an excepted offer and the official closing most often these get ironed out to ensure a final sale is made.
But why do home sales fall through sometimes? Here are the top reasons why some home sales never make it to the official transfer of ownership.
The Top Reasons Home Sales Fail in 2022
32% of Home Sale Failures are Due to Home Inspection Issues
This is by far the most common reason that a home sale falls apart. Research from the National Association of Realtors backs up the statement. The most common contingency included in an offer contract is the home inspection contingency. This gives the buyer making an offer on a home the ability to back out on their offer should the inspection find concerning damage or issues that would cost a large amount of money to fix.
The Buyer is Denied a Mortgage
Around 13% of home sales fail because the buyer is unable to secure official mortgage funding. Even with a preapproval, a buyer could face rejection from a mortgage lender when the underwriting process begins. This is the process of the lending company digging into the details of both the financial aspects of the buyer and the current condition and aspects of the property they made an offer on.
If anything is found during this process that the underwriter questions and the buyer is unable to provide a satisfactory answer the lender could deny the loan.
Official Appraisal Coming in Below Offer
It is rare that a mortgage lender does not make an official appraisal mandatory on a property as a condition of loan approval. They want to make sure they are not taking a huge lending risk by lending out more money than the property is officially worth. If a buyer makes a high offer on a home and a professional appraiser says the property is worth less than that offer, the lender most often will be unwilling to lend anything above the official appraisal.
This is known as an appraisal gap. In the event of an appraisal gap, the buyer has two options: if the lender will allow they can pay the difference between the appraisal and their offer out of their own pocket. The second option is to walk away from the home sale if they aren't able to pay this price or the lender denies approval.
Eleven percent of home sales fall through because of the appraisal gap.
The Buying Party Loses a Job
With the craziness of the current economy, job security is much lower than it once was. This was especially true at the very beginning of the pandemic. If one of the buyers loses their job in between the time of making an offer and finalizing the closing of the sale they may no longer be able to secure a mortgage loan on the home. The National Association of Realtors reports that 5% of home sales failed because of this.
One Percent of Home Sales Fail Because of Deed or Title Problems
It's a very rare occurrence but it does happen. After getting through all of the due diligence to make sure that contingencies are well and fine the deed and title will be researched on the home. Almost all home sales have a lender that requires title insurance which requires the title company to perform a title search to make sure that there are no liens or claims on the property. In very rare cases, this search results in another company staking claim to being paid before the home can be sold and the title can be transferred.
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