Real estate transactions are a multi-stage process, and “under contract” is a crucial stage. The “under contract” stage is a crucial one, where both the buyer and seller have reached an agreement on terms and price, but the deal is not yet complete. Not all homes that are under contract will be successful in their sale.
This article will explain why homes under contract may fail and the difference between “under Contract” and “Pending” status.
Clarifying the Difference: Pending vs. Under Contract
Prior to discovering why some contracts fall apart, we must first understand the differences between under contract and pending. MyState MLS Blog is a great resource for understanding the differences between these MLS listing statuses.
What Does Under Contract Mean?
A home that is “under contract” means the buyer and the seller have reached an agreement on the terms of the sale, but the transaction is not yet complete. This stage may include inspections and other conditions, such as contingencies.
A deal that is under contract does not necessarily mean it will be completed. Due to various contingencies, many sales never reach the closing. That said, agents and brokers will make the status of houses contingent after a contract is executed.
Can buy a house when the sale is conditional. A second buyer would have to buy if the first sale falls through. Buyers who were interested in the property should be on guard.
In some states, the listing status is ” active contract.”
Pending Status
The “pending” status means that all contingencies are met, and the sale has reached the final stages. The chances of a deal falling through are lower in a pending status than they are for homes under contract.
Let’s now explore the reasons why homes under contract can fall apart.
Common Reasons Why Under-Contract Homes Fail
The transition from an “under contract” status to a successful real estate sale can be a difficult process. It is fraught with challenges. Both buyers and sellers need to understand the reasons why homes under contract may fail.
Here are some of the main factors that can derail a real estate transaction:
Financing Issues
Financing problems are a common reason for deals to fall through. Financing problems can be the cause of a deal falling through. A pre-approval can also expire. Low appraisals may also lead to problems with financing, as they could affect the agreed-upon price.
Home Inspection Concerns
The home inspection is a crucial part of the purchasing process. The buyer may decide to cancel the contract if the seller refuses to negotiate or address any significant issues that arise during the inspection.
Appraisal Shortfalls
This can lead to a discrepancy in the expectations of the buyer and the lender. This discrepancy may lead to contract cancellations or renegotiations. It is also known as an appraisal gap.
Title Problems
A sale can be derailed by issues relating to the title of the property, such as unresolved mortgages, disputes about property boundaries, or undisclosed access easements. Before the sale can be completed, these issues must be resolved.
Buyer’s regret
Buyers may have second thoughts after signing a contract. Although rare, this emotional component can lead to a contract cancellation.
Seller’s Reluctance
Suppose they find it difficult to replace the property or receive a higher offer. In that case, sellers may decide to withdraw from a transaction. The sale can be disrupted. If the buyer brings a lawsuit for performance, it is unlikely that the seller will win.
Contingency Expiration
Many contracts include deadlines to meet different contingencies such as approval of financing, home inspection, or the sale of the buyer’s existing home. The contract can become null if these deadlines aren’t met.
The buyer must be careful to understand the important contract milestones. By not performing their obligations or asking for an extended period, they could lose the earnest deposit.
Market Conditions
Buyers may reconsider their decision to purchase a home if the market changes, for example, if property values drop unexpectedly. A change in the economy or circumstances can make an attractive deal less attractive.
What Are Some Warning Signs To Look Out For?
Early warning signs in real estate can save buyers and sellers from disappointment and wasted effort.
Here are some warning signs that a house is under contract.
Delays In Meeting Times & Contingencies
Real estate contracts contain important safeguards. It may be a sign of a lack of commitment or unresolved problems if either party fails to meet contingency deadlines consistently. Be sure to pay attention to the timelines for inspections, funding, and any other contingencies in the contract.
Communication Breakdown
Communication is key to any successful real estate deal. If either party is unwilling to communicate, becomes unresponsive, or refuses to provide information, this can be a warning sign.
Communication that is transparent and open is key to resolving issues quickly.
Repeating The Renegotiations Process
Renegotiations can be a part of any process. However, if they are excessively frequent, it could indicate trouble. Negotiations on the price, repairs, or other terms are often back and forth, which can be a sign of underlying disagreements.
The Seller Continues To Market The Property
It could be an indication that the seller is not committed to the deal if they continue actively marketing the property after accepting the offer and signing the contract. This can lead to instability and uncertainty in the deal.
The Buyer’s Financing Issue
Watch the progress of the buyer in securing finance. Suppose the buyer requests frequent extensions or is slow to provide the required financial documents. In that case, it may be a sign that they are having difficulty obtaining financing.
The buyer’s pre-approval letter is only valid for 60 to 90 days. Remember this if you suspect a problem.
Seller Hasn’t Resolved Inspection Issues
It can be a problem if the home inspection uncovers significant problems and the parties are unable to agree on the best way to fix them. If inspection issues are not resolved, the contract can fall apart.
Legal or Title Issues
Contract cancellations can be caused by legal issues relating to the title of the property. To avoid a deal falling apart, it is important to resolve any unresolved disputes, liens, or title discrepancies as soon as possible.
Market Shifts
Keep an eye out for the larger real estate market. Significant changes in the market, like a sudden decline in property value, can affect buyer or seller motivations. If they sense a decline in the market, buyers may be willing to renegotiate. Sellers might also consider other options.
Buyer’s Regret
It’s important to respond quickly if the buyer has doubts or buyer’s regret about their purchase. Ignoring such feelings could lead to a contract termination.
Unreliable Behavior
Instability in the transaction can be signaled by inconsistent behavior on either side, such as making erratic decisions or changing terms frequently. Throughout the contract phase, consistency and reliability are essential.
Final Thoughts
Real estate can be a complex and uncertain journey. Understanding the differences between “under contract,” “pending,” and “pending status” is important because it sets expectations for the transaction.
Homes that are under-contracted can fall apart for a variety of reasons. These include financing concerns, inspection concerns, and unexpected market shifts. To avoid these pitfalls, it is important to have open communication with all parties and to understand the contract terms and conditions.
A knowledgeable and experienced agent can be a key player in ensuring that the transition from contract to sale is smooth.
