It’s common to see a “pending sale” sign pop up after two or more months in a buyer’s market. Days on market are often much longer when there are fewer buyers than sellers. But it’s just as common to see the pending sign come down again. A sale could cancel due to seller’s remorse, but that’s a long shot.
When Mortgage Loans Fall Through
A buyer who doesn’t know any better might increase their debt load while they’re waiting for their mortgage loans to close. They finance large purchases, taking out a loan for a new car, or financing the purchase of furniture. A higher debt-to-income ratio can make a buyer ineligible for the mortgage loan they thought would be approved. The pending sale will go back to active if the loan is rejected due to a buyer’s impulse financing. It’s also possible that buyers might not have knowledge of liens or judgments filed against them. This can also affect their creditworthiness so the loan the buyer thought he had in place can ultimately be denied.
Other Lien Issues
It might be discovered at the penultimate moment that the seller can’t legally transfer the property to the buyer—at least not without satisfying liens against it ahead of time or at closing. A seller might not be willing to do this. If the lien in question is astronomical, they would have little money left to establish a new home if it’s paid from the sale proceeds. Liens can be put in place for a variety of reasons, such as unpaid property taxes, federal tax debt, or unpaid child support. Perhaps there’s another party on the deed—maybe an ex-spouse—who isn’t willing to sign off on a title. The rules for how they are managed vary from state to state, but often a sale can’t go through unless and until that lien or encumbrance is removed.
Buyer’s Remorse
Sometimes buyers just get cold feet. Standard contracts usually give them two to three weeks to do inspections and take care of other details, and buyers can often cancel a contract during this time. If the buyer acted in good faith, they may get their earnest money deposit back upon cancellation during this period. Depending on the terms of the contract, though, they may forfeit their deposit. Either way, a property can go back on the market simply because the buyer got scared and fled for the hills.
Home Inspections
Many homes look the same to an untrained eye: four walls, a floor, and a roof. But every little crack in a wall and every spot on a ceiling can spell trouble to a home inspector. Wet basements, failing roofs, and malfunctioning HVAC systems are three significant problems that an average buyer can’t reasonably inspect without professional assistance. Buyers tend to panic when a home inspector points out problems, but all homes have problems—even new ones. Some problems are significant, and others are no big deal. Sometimes buyers demand that sellers replace worn appliances or fix pre-existing conditions. A buyer can also ask for a credit from the seller as compensation for perceived defects. The pending sale cancels and the home goes back on the market if the seller refuses these options.
Low Appraisals
Lenders almost always ask buyers to pay for appraisals to protect their position when and if they ultimately end up financing the home. Sometimes appraisals come in at less than the sales price. Buyers have a few options when this occurs. They can pay the difference in cash or order another appraisal from a new professional. They can supply the underwriter with comparable sales that support the sales price. They may also give the seller a second mortgage for the difference. A buyer might ask the seller to reduce the price so it’s more in line with the appraisal. But the pending sale will fall apart if the parties can’t agree to work out one of these solutions.
Contingent Offers
A buyer can lose a home sale if the contract is contingent upon selling their own home and this hasn’t happened within the specified time period. Few buyers can afford to own two residences at the same time, making double mortgage payments. Even if the first house is paid off, the buyer might need the cash from that closing to put down on the new purchase. These contingent offers can create a domino effect. All other transactions that are contingent upon that one closing will fall apart. Depending on the contingency agreement language, sellers might also retain the right to kick out a contingent buyer and cancel the contract if another buyer wants to buy the home without a contingency.
