Why Home Sales Fall Through

Home sales fall through constantly in the world of real estate. For homebuyers and sellers, trying to successfully reach the close of escrow date is like walking in a minefield. Just when you think you’re about to cross the finish line, a hidden trap can detonate, blowing the deal to smithereens. To help you avoid these pitfalls, here are 13 merciless reasons that can cause a home sale to fall through.

Why Real Estate Deals Fall Out of Contract

Table of Contents

To spice this list up, we will also unveil whose responsibility each of these is. That’s right! Whether you are on the buy or sell side of a real estate deal, this guide will reveal who’s fault each is. Time to face the music and determine why home sales fall through so often – and how we can avoid them.

1. Title Issues - Seller’s Fault

Why real estate deals fall through

99% of real estate deals involve a title company that pulls a detailed report of the property’s history and current status. This title report will reveal all skeletons hidden in the seller’s closet – some of which the seller isn’t even aware of.

As a homeowner, all you want is to sell your house fast for cash and be done with it. Unfortunately, title issues can completely derail that dream. If there are major title issues, it could make the home sale fall through in seconds. Several title issues that can cause a real estate deal to fall out of contract are:

  • Undisclosed liens
  • Deed fraud
  • Inherited property not probated correctly
  • Legal claims from third parties
  • Seller identity or name disputes
  • Clerical errors in public records

Steps to Avoid

It’s hard to avoid title issues. Although this responsibility of the deal falling through falls on the seller, they may not even know about it until the title report is out. On the other hand, the seller may know all about these sketchy property issues and is trying to brush them under the rug, hoping they go unnoticed.

There are some title issues that sellers can get ahead of and be proactive about. Ideally, they tell the title company everything they know about the potential title issue. This gives the title company more time to handle the dispute and clear the title so the home can sell successfully.

If you’re already deep in the closing process, clearing title issues can delay closing by weeks (or months). Severe title issues are so time-consuming and costly that they instantly make home sales fall through. In some cases, they may not be resolvable, leading to a dead end for the sale. This situation can be incredibly frustrating, especially if discovered late in the selling process.

2. Financing Issues – Buyer’s Fault

Imagine the crushing disappointment when a buyer suddenly finds their loan approval has been denied. This scenario is extremely common. Financial institutions are very cautious about who they approve for mortgages. Since it can take several weeks to get approved for a mortgage to buy a home, real estate deals can fall out of contract last minute because of the timing.

While this is technically the buyer’s fault, it’s not always intentional. Mortgage companies have strict lending criteria. A loan can get denied even after pre-approval, even when a buyer is confident they will get approved. A slight shift in the buyer’s credit score, unexpected new debt, or change in employment can lead the bank to deny a mortgage request. The result? A withdrawn loan approval, leaving the buyer, seller, and real estate agents frustrated.

Steps to Avoid

To dodge this bullet of having your home sale fall through, buyers must be smart about all financial decisions while under contract. This means don’t spend huge amounts of money unnecessarily until the home sale closes and your loan is processed. Another tip is to hire a solid lender for your mortgage. Some lenders will work harder for you to make sure the loan gets approved on time so that the real estate deal doesn’t fall out of contract.

Pro Top: as the seller, you can also do additional due diligence on the buyer before accepting the offer by calling the lender on the preapproval letter – or have your real estate agent do this. Lenders won’t typically give exact info on a buyer’s personal information, but you can often get a feel for the confidence in the lender by asking some basic questions about the type of loan the buyer is using and their ability to close on the loan.

3. Too Many Liens Tied to the House – Seller’s Fault

Although this technically falls under title issues, it’s a common reason that home sales implode. Liens are like hidden debts attached to the property – they must be settled before a sale can proceed. Especially in inheritance situations, a homeowner doesn’t even know that there are massive liens tied to the property.

For example, their grandparents (original owners of the home) could have taken out a second mortgage and never paid it back. Liens tied to a property stick with it until it’s sold. Sellers are shocked to find out there are huge debts attached to the home. Since they must get settled before closing, this causes many deals to fall out of contract.

Steps to Avoid

It’s up to the seller to identify these liens ahead of time. If not, the title company will catch them, potentially causing the deal to blow up later. Other liens, such as unpaid property taxes or water bills, can be avoided by the current owner.

This responsibility falls on them to keep up with their payments. If not, they should disclose the amounts owed on the property before getting under contract with a buyer so that all parties know that the debts can be settled at closing. Sometimes, the total debt may exceed the property’s value, making the sale financially unfeasible for the seller.

4. Buyer's Remorse – Buyer’s Fault

Why house Sales Fall Through

The situation calls for a big ‘oof’.

Buyers back out of real estate deals all the time, causing them to collapse. Buyer’s remorse is an emotional roller coaster that can strike unexpectedly. After the initial excitement fades, buyers may start second-guessing their decision. That little voice inside your head can cause doubts about overpaying, the house itself, or an overall change of heart.

This emotional U-turn is frustrating for sellers, who may have already started making plans based on the deal closing. What if the seller had plans to buy another house contingent on the sale of this one? Yikes! When a house sale falls through because of buyer’s remorse, the responsibility is fully on the buyer.

Steps to Avoid

For sellers, do your due diligence when selecting a buyer to sell to. If you have multiple offers, listen to what your gut is saying about the people you’re about to go under contract with. Also, get a hefty deposit from them with limited contingencies. This way, you can at least collect their deposit if they back out for a random reason.

5. Low Appraisal - No One’s Fault

Low appraisals cause real estate deals to fall apart constantly. Sadly, it’s neither the buyer’s or seller’s fault. Both agree on a price, which leads the buyer to pursue financing based on that set price. If an appraiser values the home lower than the agreed selling price, it can lead to a home sale falling through.

Most lenders refuse to provide a mortgage for more than the appraised value, leading to a financial issue. The buyer may be unable to cover the difference, or unwilling to overpay. The seller might be reluctant to lower the price.

Sure, both the buyer and seller can try to negotiate, meeting in the middle somewhere. However, it’s not black and white. This stalemate can quickly dissolve a once-promising deal.

Steps to Avoid

It’s hard to avoid this reason for a house sale dissolving. Occasionally, the appraiser can do a bad job of evaluating the property. You can do your own research to determine the fair market value of the property and show it to them. Sometimes, lenders will send out a different appraiser when they believe the initial appraisal is inaccurate.

6. Home Inspection Issues - Both Party’s Fault

The home inspection is oftentimes the deal breaker when it comes to a house sale going through. Inspectors can uncover a range of issues, from outdated plumbing to structural problems. Certain inspection items aren’t a huge deal. Both the buyer and seller usually don’t worry about them and still close. Other major issues, such as roof damage, kickoff negotiations between the parties.

If the inspection report issue is costly or unpleasant to live with, buyers will usually put up a stink about it. It makes sense! Buyers won’t want to buy a house at the agreed-upon price now knowing that it has this expensive repair they’ll have to deal with. Or maybe the property damage will make living there horrible so they’d rather not deal with it.

Steps to Avoid

This reason why home sale falls through is labeled as the fault of both parties. Because each side plays a role in the negotiation. Sometimes, buyers are asking too much. Other times, sellers are being too stubborn.

Whichever side you sit on, try to be reasonable and flexible. Meet the other side in the middle of the house is worth pursuing. When homes are bought with mortgages, lenders can even deny a loan because of an inspection report – which is out of everyone’s hands. This is less common when someone is trying to wholesale real estate off-market to an investor. Off-market real estate deals hardly require an inspection and fall through less frequently because of it.

7. Seller Isn’t Legally Allowed to Sell the Property – Seller’s Fault

Why real estate deals fall out of contract

In a dramatic twist, there are instances where the seller doesn’t have the legal right to sell the property. This reason for a real estate deal falling out of contract could be intentional or unintentional (because they weren’t aware). Sellers not being legally allowed to sell a property can arise from various complications, all hard to overcome.

For example, there could be an unresolved inheritance dispute that still needs to be settled between siblings who don’t get along. Ouch! That deal is likely not being revived anytime soon. Another example is when a divorce proceeding over a house is not yet settled. It’s common for one spouse to want to sell immediately and get away from their current partner who they despise while the other wants to keep the house.

Another sadly common example is when fraud is involved. The ‘presumed’ seller reaches out to you attempting to sell the property when it’s not legally theirs. Discovering this issue late in the process can cause a significant legal headache. This is a hard one to recover from. The house sale will likely fall through when fraud is present.

Steps to Avoid

Ask for the seller’s photo ID and send that to the title company right away. Tell the title company to run the title report and see who has the legal right to sell the property. They will be able to catch anything that buyers miss.

8. Contingencies in Contract – Buyer’s Fault

Contingencies are conditions written into the contract that must be met for the sale to proceed. Common contingencies include the buyer selling their current home, obtaining financing, or the house passing inspection. These clauses are safety nets for both parties but can cause a real estate deal to fall out of contract.

If any contingency isn’t met, it can squash the deal. Buyers input contingencies into a contract so that they can back out of a transaction based on certain circumstances playing out. Well, that’s the legal way to describe it. Savvy buyers will use contingencies as a way to back out when they want because they placed a certain clause in their agreement that you (the seller) signed and now must abide by.

Steps to Avoid

As a seller, read through the entire agreement at length before signing it. Make sure you feel comfortable with and understand all contractual contingencies. If you feel like it would be helpful, hire an attorney to also read through the contract. This will help you avoid contractual landmines that could cause the home sale to fall through.

9. Seller Ghosts the Buyer – Seller’s Fault

Reasons why real estate deals fall out of contract

‘Houston, we have a problem.’

Seller’s remorse is less common but does happen! It can occur in a variety of ways that cause house sales to crumble. Since the buyer is the one putting a deposit down – not the seller – the seller can ghost a buyer and not show up to closing without losing money.

Why would a seller completely cut off communication with a buyer right before closing? There are dozens of traumatic life reasons that influence this disrespectful decision. It leaves the buyer with a fat pile of wasted time – and has sadly happened to us before at SD House Guys! The ghosting reason isn’t always as dramatic as we made it sound. The seller could simply want to keep the house and doesn’t know how to tell you.

Steps to Avoid

While it’s tough to identify what types of sellers would purposefully blow up a real estate deal last minute like this, there are things you can do after the fact. Filing a Lis Pendens puts a legal lasso around the house you were rightfully supposed to buy. As a buyer, you’ll have to pay an attorney to file this. However, if it’s a good deal, it could be worth trying to salvage.

10. Job Loss – Buyer’s Fault

If the buyer experiences a significant change in their financial situation, like a job loss, their mortgage approval can be jeopardized. While this technically falls under financing issues, it happens so commonly it deserves its own section. Lenders can reassess if they want to give out a mortgage to a buyer if their employment changes. This happened a ton during COVID-19 as many people’s jobs changed overnight.

Steps to Avoid

This is another one that’s hard to avoid off the bat. Trust your gut when choosing which buyer to sell your place to. Gut feelings can help you avoid issues that cause house sales to fall through.

Certain states have specific real estate forms, called Buyer’s Financial Information, that a buyer fills out per request of the seller. It breaks down their entire financial history, noting things like foreclosure history and debts. This helps sellers vet buyers even more deeply when they want that extra peace of mind.

11. Real Estate Agent Messes Up – No One’s Fault

Reasons Why Home Sales Fall Through

For better or worse, real estate agents are very involved in real estate transactions. They have hard jobs, leading to mistakes that blow up deals. For example, miscommunication between parties, errors in paperwork, or failure to meet deadlines, can have serious repercussions. While these issues seem minor, they can completely derail a real estate deal from closing.

Steps to Avoid

Vet a real estate agent before you hire them. Look at their reviews and make sure they’re a good fit.

12. Seller Accepts a Higher Offer – Seller’s Fault

The real estate market can sometimes be cutthroat. As a buyer, you may think you’re all set once you are under contract. Nope!

Sometimes, sellers receive higher offers after already accepting your offer. This puts them in a peculiar situation of ethics. Do they continue with you – as they are contractually obligated to do – or do they bail? More money is always tempting. Sellers may attempt to back out of the initial agreement to take a higher offer that came in after yours.

Steps to Avoid

Similar to when a seller bails, you can lead to a legal dispute. If sellers try pulling a fast one on you, place a Lis Pendens on the property.

13. Market Fluctuations - Buyer’s Fault

The housing market is dynamic. A shift in market conditions, such as an increase in interest rates, can impact a buyer’s willingness to proceed.

“What if the market crashes and I lose all my money when buying this property?”

Buyers may be afraid that interest rates will rise and cause the market to crash. This market fluctuation is the reason why many home sales fall through.

Steps to Avoid

Try to avoid working with buyer’s that seem flaky. If they have a large amount of savings and a steady job, they should be able to handle any real estate market turbulence. By selling to a reliable buyer, you can avoid this issue that can cause a real estate deal to fall out of contract.