On today's episode of the Get Me Ready to Sell podcast, I will be discussing what happens when a deal falls apart and how to fix it, if possible. Whether you're a buyer or a seller, this information will be valuable to you. It doesn't matter that the house is under contract; unforeseen circumstances can still cause the deal to crumble. As a buyer, you may have made an offer that was accepted, or as a seller, you may have accepted a counteroffer. Either way, you were ready to move forward, but now you find yourself back at square one. In a previous episode, I addressed unexpected obstacles that can arise for sellers, but today we will focus on what specifically causes a deal to fall apart and what steps can be taken to rectify the situation, if any. So, let's dive right into it on this episode of the podcast.

• 4:11 - Inspections
• 11:33 - Appraisal
• 13:18 - Underwriting
• 18:33 - Title Search
• 22:54 - Cold Feet
• 26:11 - Watch for these signs
• 29:15 - Save the deal

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Busted - Why Deals Fall Apart (Seller)

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The house is already under contract. However it falls apart. What happened and what do you do to fix it? If you can fix it.

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thanks for joining me today on the Get Me Ready to Sell podcast. On this episode, I'm going to be talking about what happens when a deal falls apart. It's busted. The deal was ready to go, but for some reason it fell apart. And what do you do when you have a house to sell when the deal falls apart? This episode is talking to both buyers and sellers about it.

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We're going to wrap up at the end with some specific things for you as the seller. So let's jump into the podcast right now. I talk about on the buyer and seller podcast get me ready to buy and get me ready to sell this whole idea of persevere through close, it's an element for both buyers and sellers because it doesn't matter that a house is under contract. As a buyer, you've made an offer, the seller has accepted it, or the seller's made a counteroffer, the buyer's accepted it. As a seller, you're ready to move on to close. But things can happen that cause the deal to fall apart. We talked about in a previous episode, at least for the sellers, what happens and unexpected things pop up. So today we're going to talk about specifically what causes a deal to fall apart and what you can do to correct that, if in fact you can do anything. Now, how often do deals actually fall apart? Well, the statistics vary on that.

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Let me say that again, the statistics vary on that. According to research by the National Association of Realtors, in June of 2021, about 5% of the deals actually fell apart, which means 95% got to close. May have had some work to do with it, but they got to close. However, what happens if you're in that 5% and it's falling apart? Can it be redeemed? Now, some more recent survey that went out in June of 2022. Redfin announced from their research back in June of 22 that 14.9% of the deals fell apart. That's a little bit higher, but we've also had some turbulence in the market back during the summer of 2022 that is kind of continued. Right now, this is September of 2023 when I'm recording this. But the idea is that most homes that are under contract get to close.

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The vast majority of them get to close. Worst, it's only 85% that get to close. But still you don't want to be in that 5% or that 14.9%. What can you do to avoid it? Is there a way to redeem the deal? So let's take a look at what are some of the major causes that cause a deal to fall apart during that whole closing process. We got to persevere through close. There are three major factors that cause deals to fall apart. Contingencies, title search, and cold feet. Now let's break those down a little bit.

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And you're thinking contingencies. I thought I was going to hear something about inspections or appraisal or whatever. Well, you are going to hear that, but those are technically contingencies. The contract was written that we're going to execute this contract, we're going to pay this amount of money, we're going to accept this amount of money. We're going to do this by a certain date. It was all built on the contingencies, more than likely of the buyer getting an inspection and a favorable results or being able to work something out, getting an appraisal, all these different things that we are technically contingencies that we talk about.

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4:11 - Inspections

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So when we are talking about contingencies, the very first one right off the bat is inspections because that tends to happen the soonest of all the contingencies in the buying process. Once the home property is under contract, the buyer is able to schedule a home inspection.

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They're going to get a home inspection report. They're going to look at that report and they may ask the seller to repair some items on that list. They may tell the seller that, hey, they don't like what they see and they're just going to walk away. So that inspection sometimes cause a deal to go bust. We can't blame the inspector. The inspector is not making things wrong with the house. All they're doing is identifying issues that the property happens to have. I had an inspection back on a property just last week or came in over the weekend and the inspection said the toilet valves in both toilets need to be replaced.

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There are some shingles that are popped up. There's a gutter that looks like it's stopped up. There is a light not working in the kitchen, a variety of things that it could be. And for us, the seller, I represent the seller, the seller has agreed to fix most of those items. We're offering a counteroffer back to the buyer and says, hey, this is what we'll repair. And then they can make a decision based on that of what they want to do next. But the inspection can sometimes make the deal go bust. Mold is identified.

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There could be foundation issues. Maybe there's some pests. I had a buyer not aware that the home actually had mouse problems. It's kind of out in the country a little bit. The inspection revealed that there were some mouse issues and that almost made them back out of the deal. They didn't and they love it. They've been there five years and they love the place that they have now. But that was a concern when they went into this.

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Sometimes inspection could reveal some structure issues. Maybe there's some roof issues. I mentioned that with some shingles being popped up, some of the systems that are in there, it could be electrical, some plugs don't work, lights don't work, plumbing, the toilet valves don't work. Sink doesn't drain or it leaks when it drains. It's going to identify all those types of things. So there's a variety of types of things in the home inspection report that the inspector is going to reveal. Now, regardless of any of these issues, more than likely the contract that has been accepted by both the seller and the buyer has written in it language that gives an out. For some reason, the buyer doesn't want to move through forward with the house.

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If it's in the contract that both parties have accepted and they use one of those reasons to back out of the deal, then they can back out of the deal. And we call that no harm, no foul. They did their due diligence, the seller did their due diligence. For whatever reason the buyer just chose, they're not going to move forward. But it has to be something specified in the contract for them to get out of it. So look at the language in your contract, in whatever market you're in, to look at what the inspection indicates. The contracts that I use in my market says that we have ten days. Unless we make some changes to that in a place where we can add some elements to the contract, we have ten days to get a home inspection and then we have so many days to negotiate.

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What happens after that inspection? The inspection comes back, the buyer has the option to say, I want to terminate now. There's too much going on here, I don't want to mess with it anymore. I was not aware of all those things. They have an option. Sometimes it has to be something new that was undisclosed. If the seller told them everything and they got cold feet, maybe that contract still doesn't let them get out because the seller is like I told you, all these things. The inspection didn't reveal anything new. But that inspection could still have a chance to blow up the deal so that that doesn't close.

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The property goes back on the market. Seller finds a new buyer, the buyer finds a new property. That may be what happens there. So look at the language on what the inspection does, but hopefully you're able to work all of that out based on the inspection. And the buyer can move forward with closing on the property and the seller can move forward on getting it sold to go live where they want to live next. Another type of inspection at least common in my area is a wood destroying insect report. We commonly refer to that as a termite inspection. But termites aren't the only wood destroying insect.

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So the buyer has an option to get a wood destroying insect report either at their expense or at the seller's expense. Many times the buyer asks the seller to pay for that. I encourage my buyers to pay for that themselves so they control who is the one giving the report. Not that the seller is going to do anything wrong or underhanded, their agent shouldn't allow them to do that. But if you're the buyer and you're getting an inspection on a property, you need to be the one choosing who that inspector is and getting that report so that it's up to you to make sure you got a good report from it and not just accept what somebody else has. Now some sellers actually have a property under a termite contract with a reputable termite company that inspects the property. They're going to guarantee to replace anything, repair any damages. If termites actually do get active, they can come and do a courtesy check just to verify there's no active wood destroying insect activity going on.

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And then the buyer could accept that report because chances are they're going to continue that at least through the end of the current term and that's going to be transferred to them. Most of those termite companies will allow it to be transferred. That's just a question to ask as a buyer or as a seller. Go ahead and make that available and say I've already talked to my termite people and we're going to able to transfer this to the new owner. It's just one of those other reports that comes in. There could be some other types of inspections that you get. I've seen some that are on well water and they get a well water report just to look at what microorganisms are actually in the water. Maybe there is a septic tank inspection.

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There could be a specific structural engineers report that comes in. There are a lot of different inspections that can come in that are contingencies written into the contract that the buyer wants to get these inspections and get a satisfactory report, be able to move forward. If not, there's some negotiating that happens. So those contingencies can be one of those contingencies are the types of inspections you can get on your home.

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11:33 - Appraisal

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Another contingency is going to be the appraisal. If the buyer is getting a loan from a mortgage company, that mortgage company is going to want to verify the value of the property to determine the amount of the loan they're going to offer. Some lenders. Depending on if it's a VA loan, it could be a USDA loan.

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In a rural area, those would be 100% financing. But they still want to know what that 100% is. If the house is only valued for $300,000, they're not going to do 100% financing for $325,000 if that's what the agreed upon sales price is. So that appraisal is a contingency because it says this property is going to close at this price by this date. But we got to make sure that the appraisal validates that sales price, at least for the loan. Sometimes a cash buyer will still get an appraisal to make sure they're not paying more than what the property is worth unless they really want it. And that's what the market demands. We came out of a market a couple of years ago where it was very common for homes to sell for $10,000, $20,000, $30,000 in my market.

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In other markets, it was $50,000 or higher over the appraised value. That's just what the market demanded. At that time, there was still an appraisal to determine how much the lender was going to let the buyer borrow for the purchase of the property. The buyer had to pay the extra so the appraisal could be too low and if it can't be worked out, a new agreed upon sales price, or the buyer having enough cash to pay the difference and wanting to move forward, the deal could go bust.

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13:18 - Underwriting

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Another contingency is going to be the loan. If the buyer is not paying cash, they're making the purchase of this property. There's on my forms, contracts, there's a little checkbox that says we're going to get a loan, that the buyer is going to get a loan. This is the type of loan they're going to get that could be changed later down the road, but this is the type of loan they're going to get.

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And so in that underwriting process, when the lender is looking at all the different aspects of the buyer's current credit worthiness, current job, current amount of money in the bank, ability to pay it back, debt load, all those items go through underwriting. They're evaluating the house, they're evaluating the buyer, and they are underwriting. They're going to support the purchase of this particular property. That could cause a problem because the buyer's financing could fall apart. If they're unable to get a loan, then they're not going to be able to purchase the property. And they have a way written in the contract to get out of it without any harm coming to them for backing out of the deal. Their financing could fall through an underwriting. Another issue with underwriting is property insurance.

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It is getting more difficult for properties to be insured, especially in areas with significant natural disasters that happen. Hurricanes, tornadoes, tsunamis, whatever it may be. There are some issues that come up that's getting it increasingly difficult. I personally haven't seen any deals fall apart because of lack of being able to get property insurance. But I had one that was difficult to get insured and came close to derailing it until the buyer was able to find insurance that they could afford that would actually cover the property. Just know that that's an issue. There could be an issue. If the roof is too old, the insurance company may not want to insure the property because it needs a new roof.

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They don't want to pay for it. The buyer doesn't want to pay for it and can't. The seller doesn't want to pay for it. So they have to work out some kind of an agreement to get this fixed to get property insurance or otherwise. The buyer has to back out and the seller has to put it back on the market. Wait at least another 30 to 45 days if it goes under contract immediately to get closed as opposed to working something out now. But those are the prime contingencies that come in. The inspection, the appraisal, the loan underwriting.

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Sometimes another contingency is the buyer selling a home. I'm working with clients right now and we're trying to find a property, but whenever we write an offer, it's going to be contingent on them being able to get their property sold. We will disclose that to the seller. Hey, we want to buy this property. However, we need time to get this house on the market and get it under contract and sold so that they have the money to move forward with buying the new property. The buyer, the seller can accept that, reject that, make some counteroffer. What would typically happen is the house stays on the market, keep marketing and listing the property. I actually did that with a listing I had recently.

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Buyer wanted it. We accepted the buyer's offer. We gave them a month to get their house sold. They didn't sell it. They asked us to extend closing. We extended for another month, meaning two months of this property not being actively marketed. Because what happens is if it's pending, bringing other offers or contingency first right of refusal. I think it showed four times in those two months because sellers buyers weren't interested in taking a look at a house that was already under contract.

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I would have some agents call me and I'd say, hey, they're not having any movement on getting their house sold. We would love to see an offer come in on it. And then the buyers that had it under contract, we would be giving them 48 hours notice to remove that contingency, meaning they're going to buy the house regardless or back out of the deal. And ultimately we ended up having to give them that ultimatum and they backed out. And we currently have it under contract and it should close within the next two weeks, maybe even this week. Anyway, the buyer having a home to sell could be another contingency that's written into the contract those are just the primary contingencies that come into getting an offer accepted and actually getting that offer closed. Everybody has agreed to all those terms, but that doesn't mean it's going to close. There could be problems that pop up with that.

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18:33 - Title Search

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We've talked about contingencies. I also mentioned that one of the major factors in loans or deals falling apart and getting busted is the title search process.

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The title search process is to protect the buyer and the lender and ultimately protect the seller as well. Because what the title search does is it looks back through history at the title of the property to make sure that someone else can't make a claim to the property. The property could have been let's just say that let's say that my dad did buy land 30 years ago, built a house on it. We were selling that property. Let's say that somebody 60 years ago, as an heir to whoever sold it to whoever sold it to my dad three owners ago, some heir could come up and say, hey, my great grandfather left me in the will and this is part of the property, part of what I inherited. My father never signed his rights away, which means I have right to the property. Those kinds of things can happen. Title search is going to go back and look for that title.

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Insurance is going to protect the current owner and the lender from losing their stake in the property. If those type of issues do pop up, title search does the best to find all those issues. And if you're a seller, you want to be able to transfer clear title because you don't want a buyer coming back to you later down the road and going, hey, you didn't sell me clear title to the property. If you're a buyer, you want clear title because you don't want the opportunity for somebody to come to you in ten years or 15 or 20 years or in one year and say, hey, I actually have an ownership stake in this property and a right to it. You've got to move out, got to give it back to me. You don't want those things. You also don't want there to be an issue if there is a lien on the property. Plumber did some work five years ago and the seller, the owner at the time, didn't pay them.

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So there is a lien against the property. You want to find out if there's outstanding liens on those properties. An outstanding lien that's going to show up is a first mortgage. If there's been a home equity line of credit or a home equity loan that's come out, that's a second mortgage. That's going to be another lien. Those are going to have to be satisfied. When the property is closed and ownership is transferred, the seller will take proceeds from the purchase of the property or from the sale of the property to pay off those liens on the property. Title search finds that sometimes title search can uncover public errors, public record errors that something wasn't done properly, it wasn't filed, it wasn't signed, a name was changed.

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You want to identify those early on in the process to make sure that there aren't any issues. I mentioned missing heirs. I mentioned heirs earlier about coming back and missing heirs. There was a property, one of the very first properties I ever had under contract representing the seller was a deal that was inherited property. I was dealing with the executor of the estate, but he wasn't the only owner of the property. He had a deceased sibling who had heirs, children of his own that had a claim to the property. And it was difficult trying to find all those heirs. There were heirs who were one was an over the road trucker and was never in any one location for any length of time.

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Another was in another state, had had some legal issues that had a bearing on this. It took us ten months to get that deal closed. We kept doing extension after extension after extension. Fortunately, the buyer wasn't going to use this property as a primary residence and had time to give us to get all of this cleared up. I got to be really good friends with the buyer's agent during this process because we were talking constantly about the next ordeal in this saga. But that's the title search process. It could uncover some things that can't be remedied and the deal gets busted.

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22:54 - Cold Feet

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I mentioned the third most common reason for deals falling apart and that's cold feet. At the end of the day, a buyer may decide, I can't afford this, I don't want to live here. Maybe their job transfer didn't come through. They didn't write that as a contingency that they actually get the job. I've not seen that. But you can write in the contract whatever both parties agree to in writing. But that could be an issue. So the buyer gets cold feet for a variety of reason and backs out. They didn't back out for any of the reasons allowed in the contract.

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So what happens? The buyer will lose the earnest money that they have put down on the property, whether that's $500, $1000, $5000, $10,000, whatever that is, they will lose their earnest money. If they back out for a reason not specified in the contract that they could actually back out for any other reason. They're in jeopardy of losing the earnest money unless the seller just says, I'll give it back to them. That's possible. But again the sellers now had another month of mortgage payments and taxes, insurance, all those issues maintenance and upkeep on the house, utilities, they were expecting to have it sold. Well now they're going to have at least another month of that. So they're going to probably want some money for it to make all that to satisfy them not being able to get it sold to this buyer who had it under contract. A seller could get cold feet.

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Their job transfer didn't come through the home that they are buying, they're buying a new construction home. The builder goes out of business and can't finish the property. It's going to be a year or so before it can ever get finished. They decide not to sell right now. So a seller could back out for a variety of reasons as well. However, depending on what's in the contract, that's where you go back to the legal document, the legal binding contract. Depending on what's in that contract they could be responsible for damages to the buyer. If the buyer is renting and they've already terminated their lease with their landlord or given them their 30 days notice, they may not be able to get that back.

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They may have some issues because of difficulty making an adjustment because they're moving for a job. So they may come back to the seller and say hey listen, we made plans in our lives being able to move into this property on the date that we'd agreed that we could close by and take possession. And if you're not going to allow that to happen and it's not for one of these causes that are written in the contract, but you're just backing out of it, you're going to owe me some money for it. That's where the attorneys get involved. The legal system gets involved. Unless they can come to some agreement and arrangement that they can agree to, it could just get complicated. Sometimes deals go bust. Sometimes they go bust because of valid reasons that are written in the contract and sometimes they go bust just because one of the parties changes their mind.

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26:11 - Watch for these signs

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So what are some possible things for you to be aware of to help the deal not go bust? What are some red flags that if you begin to see those you would say, oh I think we might begin to have a know. The saying is Houston, we got a problem. Some of those would be missed deadlines. If a deadline for the inspection comes and goes, if the buyer doesn't have the inspection within ten days, they still get an inspection, but they can't back out from the deal based on that inspection. They can't ask for any repairs based on that inspection. It is what it is. That's one of those deadlines. There could be other issues.

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The lender is needing information from the buyer, the title company is needing information from the seller and they're not being diligent on getting that information in an appropriate amount of time in a timely fashion to the party that needs the information. So if one of the parties is beginning to miss deadlines, that could be a red flag. Another red flag could be silence. Whether you're the seller or the buyer, your agent's reaching out to the other side to ask for information, to get clarification for something, to make somebody aware of it, and it's radio silence, nobody is responding back. That could be an issue if things have gone silent on the other side because that could mean there's problems and we want to avoid it. So we're just not having any communication with the other side, so we don't have to admit that there's a problem here when there are constant extensions. I mentioned the extensions on that first listing I had under contract. There are constant extensions.

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Because of this being done, the seller may be having issues and they need to extend. Their house isn't going to be finished. I had an agent in our office who had to extend a deal because it was a new construction and the well wasn't in yet and it was going to be two more weeks or some amount of time for the well to get put in. So it was going to create a problem because the buyer of that property, her seller, couldn't get occupancy permit to move into the home without there being a well. They needed to have water, there needed to be an extension that can be understood to continue to work through that whole process. But when that's a constant issue of there's extension after extension after extension, that could be a red flag that there's something going on and then continuous contract changes. If there are things that are getting changed all the time, they want to change the closing date, they want to renegotiate how much, if any, the seller is providing in closing funds to the buyer, all kinds of different things that could come up. But if there are constant changes to the contract, that could be a red flag that things aren't going well and the deal could go bust.

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29:15 - Save the deal

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When you're aware of those issues, when you know what's coming and you can sense that there could be a problem or even you've gotten an inspection report back or you've gotten an appraisal back, that could just terminate the deal outright, what are some things that could be done to maybe save that deal? Well, three things I think can help save that deal, and one is just be patient. Don't get all worked up. If things come back, don't go wringing your hands and going, oh no, it's all going to fall apart. It is what it is. Just know it's information. It is a request. It could be appraisal required repairs for the appraisal to be accepted. Then the seller is going to have to make these repairs.

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And you can negotiate. Either the seller doesn't make the repairs and deal falls apart or the seller does or they negotiate some other method for it. Our house that we actually have now, we actually closed on it. Last Friday was eight years that we closed on the property. It appraised for a certain value, but there were some things that the seller was going to be required to do. And I went back and said, hey, can we skip those because I'm pretty much gutting. I don't want the seller to put down some floor covering when I'm going to raise the floor in that room. They don't need to go fix a light dangling from the ceiling.

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A house had been vacant for some time. A light dangling from the ceiling when I'm going to change all the lights anyway, went back to the underwriter, went back to my lender and said, hey, I know you want the buyer, the seller, to repair these items for it to be appraised at this value. And it was appraised for more than what we were buying it for. Can we adjust the appraised value and just leave the property as is? As the buyer, I requested that they were able to lower the price by an amount that the appraiser felt was appropriate. That was still enough to satisfy our agreed upon purchase price so they didn't have to make those repairs. I negotiated that to save the seller from having to spend money that was going to be unnecessary. My lender might have said, no, they're going to have to do it regardless and we'd have worked something else out for I would have tried to help the seller out with that, but anyway, be patient with those things. Give it some time.

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Let the agents do their job of working out with each other, communicating with each other. And that's the second part of save it and that's communicate. Tell your agent exactly what you want to satisfy the deal. Listen to what the other side has to offer. Make sure your agent is communicating with the other side and communicating your wishes in this process that you're listening back to the other side, what they can do. So that number three. You can negotiate again, keep the conversation moving forward. If you're buying the house and you want this house, then you're going to move forward in negotiation to where you're actually able to get what you want, which is the house.

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If you're selling the house because you want to move somewhere else, either you have to or you're choosing to. You want to get the property sold? Can you afford $1000 or $2,000 from some repairs or paying hotel bill for the buyer to be able to move into an extended stay hotel for two weeks because your new home isn't ready yet? Can you do those things or let the whole deal fall apart? I don't know. Your agent doesn't know. Only you know. But you have to be willing to negotiate and don't make this I'm just going to stick it to them and get everything I can out of it. At the end of the day, a good negotiation is when both parties get what they want. The seller wants that house. The buyer wants that money for whatever reason, because they're buying another property, they're moving whatever it is.

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They want the property sold. The buyer wants to own the property and move in or use it as an investment property. But both parties want the successful closing of this contract. Can either of you afford the time or the money that it takes to successfully get it to close when one of these items is going to derail or has the potential to derail the deal, only you know that. I hope this has been helpful for you today and I hope that you're never one of the 14.9 or 5% who has a deal blow up. I hope that you're able to negotiate and move the deal forward so that you're able to get what you want, which is either to transfer ownership to somebody else or get the ownership for yourself. Have a blessed day. You want to sell your house, but the deal is about to go bust.

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I hope that you've learned some things in this podcast today that you know to listen to your agent, to trust your agent to work on your behalf, and that you're going to be patient through this process. Don't blame the buyer if there's some issues that cause the buyer not to be able to move forward buying the house, some issues could be the buyer's fault. They bought a car when they shouldn't have and it changed their credit score and changed their debt to income ratio, and now they're not able to buy the car. Well, they made that mistake and yes, they blew up the deal and that could have been avoided. The inspection report can't be avoided. It is what it is. Maybe there's some things you should have known about the property, maybe not. Maybe you didn't own it.

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You inherited and you didn't know those issues were there. But whatever it is, try not to take it personal and try not to make it personal toward the buyer as well. I hope that if you like this podcast, that you will give me a rating for it. That you'll give me a five star Rating, that You'll Recommend this to your Friends who own Homes that you Think may Be thinking about selling their home for them to hear all of the episodes in the podcast so that they can actually get ready to sell their property. If you are in my market, which is the mid South Memphis area, I would be happy to answer some questions and actually help you get your home sold. When you're ready to sell your home and actually help you get it ready to sell. If you're not in my market, don't know an agent to reach out to reach out to me because I have partners in almost every market in the United States and I would be happy to help get you set up with a reputable agent who can help you get your home sold.