Buying real estate is a lengthy process. It can take weeks to find a property that fits someone’s needs and even longer to submit an offer successfully. Once the seller and buyer have agreed to a price, they will schedule a closing at a local title company office in most cases.
Despite having a signed agreement and a scheduled date for the transaction to take place, some residential real estate transactions fall apart in the very last moments. What might go wrong with a real estate transaction that would prevent a closing from taking place?
1. The discovery of damage during inspection or walkthrough
Sometimes, a professional with experience evaluating properties will locate defects that a buyer and their real estate agent failed to notice. Surprises during an inspection report can drastically alter what a buyer thinks a property is worth and might lead to cancellation of the closing.
Even when an inspection reflects what the buyer anticipates, damage to the property could still cancel their closing. The final walk-through performed by the buyer or their agent could uncover damage to the property, such as broken windows or holes in drywall, caused by the seller leaving the premises. There may also be issues with the seller taking items, like appliances or window treatments, that the buyer should have received with the property.
2. An underwhelming appraisal
The buyer and seller may agree about what they think the property is worth, but there is no guarantee that their idea aligns with the current real estate market. Property values constantly fluctuate, and the prices from just a few months ago may no longer be realistic in some cases.
A low appraisal might mean that there is an appraisal gap, so the buyer cannot secure the financing they require. That could force them to walk away from the closing if they can’t cover the gap with their own resources.
3. An issue with financing
An appraisal gap is only one of many situations that could prevent a buyer from securing the financing they require to purchase a home. When a married couple makes an offer on a home, one spouse might lose their job before closing. Perhaps the buyer overextends themselves using credit cards in the weeks leading up to their closing, which ultimately means that despite their pre-approval, they can’t obtain the mortgage they need to close on the property.
Buyers and their agents can help protect against such situations by adding appropriate contingencies to their offers. Clear communication and assertive negotiations when things go wrong can also help to ensure the closing goes as planned or that the losses for the parties involved are minimal.
Recognizing the challenges that could derail a residential real estate transaction can help people plan to better protect their interests.