3 Big Reasons Why Real Estate Deals Collapse

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July 11, 2014 by Bill Johnson


Real estate deals are never done until the deed is recorded. Until that time, a real estate transaction can be a topsy-turvy ride filled with red flags, bumps in the road and unexpected issues that need to be addressed, both on the side of the buyer and the seller.

The best way to prevent deals from going sideways is to prepare as best you can. All parties involved -buyer, seller and agents — need to do as much due diligence as possible before getting into the transaction. This may sometimes include having tough conversations, doing some work upfront and being open to collaborating when things get a little challenging.

Here are some of the biggest places where deals can get hung up – and how to avoid them.

Appraisal Issues: Homes not appraising at the contract value have been a problem since the housing crisis and will likely continue to plague the industry for years to come. Particularly in strong markets, where multiple buyers compete for the same property, the price sometimes creates a new comp for the area. Even if multiple buyers have offered to pay a price, a third-party appraiser, who isn’t part of the deal, sometimes won’t agree on the seller’s price.
The best way to avoid appraisal issues is for banks and buyers to work closely once a deal is in contract. If you have a hot property that hit a number that the comps may not support, start speaking to the mortgage professional. Understand the appraisal process and make sure the listing agent is present at the time of the appraisal to tell the story to the appraiser. Seeing a contract price and address on paper is one thing. But to know there were 100 people through the home in three days and six offers received provides color and context.

Inspection Problems: It’s the call no buyer’s agent, seller or seller’s agent wants to get: The inspector found some major problems with the home. When that happens, the deal can easily fall apart.

Unexpected inspection issues, particularly large ones, can cause scared buyers to walk away. For buyers who still want to move forward with the home, it means renegotiating the purchase price or asking the seller for credits back. Another round of negotiations means the deal can go south quickly if both parties can’t work together.

When this happens, it’s helpful for all parties to put emotions aside and work together. If the buyer wants to buy, and the seller wants to sell, it means compromising, particularly for the seller. If this buyer walks, the next buyer could have the same problem. The best way to avoid deals going south due to inspections is to have the property inspected before going on the market. Iron out any issues that may arise and then price the property accordingly. Every seller should do a pre-sales property inspection in this next generation of real estate.

Buyer’s Remorse: Buyer’s remorse happens all the time in real estate. The buyer gets excited about a property and makes an offer, only to second-guess it once buyer and seller have come to terms. It happens in situations where there are multiple offers and bidding wars. A buyer gets caught up in the excitement and wants to compete, only to find themselves scared and feeling remorseful once the dust has settled.

Before you make an offer, or before the final round of counteroffers, ask yourself: Do I really love this home? The price may be up to 10 percent more than the original offer, which means the deal has potentially changed, so ask yourself again: Does the price make sense? Do I love this home for this price? It’s better to walk away before you get too emotionally involved in the process.

For sellers, it’s best to vet your buyer before signing on the dotted line. If they don’t seem to be fully committed, haven’t seen the home enough or don’t appear to have their ducks in a row, it might be better to wait for another buyer than to tie up the listing and have to go “back on the market.”

Read more: 3 Big Reasons Why Real Estate Deals Collapse

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