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Contract Falls Apart - Top 3 Reasons

Your home for sale is under contract and you are looking forward to closing your escrow as the agreed date in the purchase and sale agreement. You are excited about that. However, after a long time waiting, you are only 2 to 3 days away from the closing, and there is some bad news. You get a call from your agent, or your buyer (if you are doing for sale by owner), telling you that the deal is not going to be closed and the agreement is falling apart.

It is very bad news for you because you have pulled your home off the market for several weeks and could have lost the opportunity to sell to other homebuyers. Worse of all, you may not only have to refund the earnest money to the homebuyer, but also have to put the home back on market for sale again. You just wonder why this happens and what you should do to prevent it from happening at the beginning.

The top 3 reasons why most home sales fall apart, or the top 3 deal-stoppers are:

1. You have a contract with an unqualified buyer

Most of the time, home sellers accept offers without asking if the homebuyer is qualified or not. Then, the home seller finds out several weeks later that the homebuyer couldn't get the mortgage loan. In this case, you not only have to let the buyer back off, but also have to refund the earnest money to the homebuyer.

Always ask for a lender pre-approved letter accompanying any offer. Although you cannot be 100% sure, at least, you know that most of your potential homebuyers are capable buyers. This move could decrease the chance of the offer falling apart.

2. Homebuyer receives negative information about your home

The home inspector found out something negative about your home and it was not disclosed in your seller disclosure form. Disclosure laws vary from state-to-state. If you didn't disclose something required by law, a buyer can back out of the contract and you have to release the earnest money to the buyer.

Make sure you disclose everything required by law about your home. If you think there is something negative about your house and can be fixed, you may want to fix it first before you put it on the market and disclose it as the problem fixed.

Sometimes, ordering a pre-inspection may make sense for some older houses as a proactive measure.


3. You have a contract with a qualified buyer, but the closing terms are too long.

If you have a contract with a qualified buyer, but there are three months to close, the chances of the deal falling apart may be much higher than a contract with a term of one month to close. Nobody can predict what could happen to the homebuyer during this 3-month period.

The way to stop possible falling apart of the deal is to avoid a long close of escrow. The shorter the escrow is, the better it is for you from this standpoint. But, it has to be reasonable and acceptable by both parties.

By Diane Tuman

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  • Last edited October 12 2012
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