If you are wondering how often do contingent offers fall through, contingent offers are an integral part of the home buying and selling process. These offers give buyers a way to back out of a transaction without forfeiting their earnest money or deposit.
Contingent offers can shield buyers from the common issues associated with home sales, such as financing and inspection issues. However, they come with their own set of risks.
1. Buyer’s financing
When a buyer is under contract for a home but unable to secure financing, their contingent offer may fall through – creating an uncertain situation for home sellers.
Fortunately, only about 5% of home offers fail after initial acceptance. While this doesn’t pose too much risk to the deal, sellers should still be aware and prepare for this potential outcome.
One of the primary reasons a home sale may end prematurely after a contingent offer is that either the buyer’s lender does not approve their loan or an inspection report uncovers issues with the house which they were unaware of prior to making their offer.
2. Buyer’s inspection
A buyer’s inspection is one of the most critical steps when purchasing a home. This ensures your house is in excellent condition and won’t need major repairs down the line.
If the inspector reveals issues with a property that you weren’t aware of, you have several options for addressing them. You could renegotiate your offer or request repairs; alternatively, you could choose to void the contract and receive your earnest money deposit back.
If you’re purchasing a home in an aggressive market, it is essential to hire an experienced inspector early in the process so they can conduct an inspection prior to your contract becoming binding. Doing this allows for any renegotiations and ensure all paperwork is finished before closing day.
3. Buyer’s appraisal
Most home buyers must get their property appraised before they can secure a loan on it. Lenders want to guarantee they’re getting a reliable investment for their money.
The appraisal process can be lengthy and filled with numerous steps. To stay informed throughout this time, it’s wise to stay involved.
When the appraisal comes in lower than your offer price, you may need to come up with more cash or renegotiate the contract in order to bring the purchase price more in line with the home’s appraised value.
When the economy is weak, contingent offers are more likely to fail. This can occur due to a buyer’s income declining, inability to secure a mortgage or simply not wanting to move until conditions improve.
4. Buyer’s home sale
Contingency offers can be highly volatile. They often include conditions that must be fulfilled in order for a buyer to move forward with the purchase.
If a home sale fails, the seller loses all of their earnest money and must begin searching again for another buyer. Not only is this devastating, but it also takes up valuable marketing time that could otherwise have gone towards finding another buyer.
Many contingent offers fail due to financing problems, home inspection issues or both. While these issues cannot be avoided in a real estate transaction, it’s essential for buyers and sellers to be aware of them and prepared for resolution before the deal collapses.
For instance, a mortgage contingency can protect buyers from losing their earnest money if they don’t secure financing by an agreed upon date. A home inspection also plays a role here and may reveal issues with the property that the seller was unaware of beforehand.
