A purchase agreement is a contract between the buyer and seller which defines the real estate transaction and the terms that are agreed-upon. While many believe this is a binding contract, there are some scenarios in which a buyer may try to pull out.
Can you pull out of a house contract?
Even after finding a prospective buyer, negotiating and reaching an agreement, your buyer could legitimately back out of the purchase contract. This is not ideal, but unfortunately, it can happen. To prepare you for some of the possible pitfalls you may have to deal with, here are some of the 6 most common reasons real estate deals fall through. In the cases discussed below, the buyers can legally back out of a purchase contract with the earnest deposit in hand.
Reasons why a buyer can legitimately back out of a purchase contract
1. Latent defects are discovered during the home inspection period
If the home inspection reveals latent defects which you failed to disclose in the beginning, or they discover that any issues are going to cost more than initially estimated, then a buyer may legitimately back out of the purchase contract. This can happen during the home inspection period, or they may ask to renegotiate the sales price.
2. Home does not appraise for the sales price
When applying for a mortgage, the property will serve as collateral for the bank, unless your buyer is paying cash for your house. This means that the buyer will be required to pay for an appraisal to verify that the money being lent by the bank is adequately protected. If the sale price is more than the appraisal, your buyer will fail to get a mortgage. Your buyer can either back out of the contract or ask you to lower the sale price so it is equal to the appraised value.
3. Buyer cannot obtain financing
In some cases, mortgage reps can be too optimistic and will attempt to get a mortgage approval even if they know the chances for the buyer to qualify for a mortgage are not very high. Unfortunately, this means that not every buyer will be approved for a mortgage.
There may also be circumstances that arise that disqualify a party from obtaining financing for the property. Some examples of this is when a buyer loses a job, is laid off, or finds themselves in debt before getting a mortgage approval.
4. Selling their existing home takes too long
Buying and selling a property takes time and in most cases, your buyer will most likely need to sell their home in order to have the funds to buy your house. As you can see from reading this blog even if a buyer has every intention to purchase your home the sale of their house could fall through for many reasons that are no fault of their own.
5. Issues with the property title
Title problems do not happen very often, but from time to time they can show up and kill a deal right on its tracks. A title search is an important requirement for a mortgage approval, so banks will always request one so they can rule any liens or inconsistencies in ownership. If a complex issue with the title arises, your buyer might not want to wait for it to be resolved and instead, pull out of the purchase contract.
6. Unexpected surprises in the final walk-through
Buyers are always given an opportunity to examine the house prior to closing, without the seller’s belongings to make sure that the house is in the same condition as was seen originally. It also gives the buyer time to verify that any items that were specifically included in the sale are present and agreed upon repairs are completed. During the final walk-through the buyer may discover repairs that have not been completed or new major repair problems may arise. At that point the buyer can ask for a credit or may choose to back out of the purchase.
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