The Spring Home Selling Season is well under way. Below are stats for the month of March. No surprise, we are still in the midst of a housing shortage and like we all know, when there is high demand and low supply, prices go up.
Each month I answer a question or deep dive into a statistic. This month I want to answer a question I am getting often these days:
Why are we seeing so many homes go under contract and then pop back on the market? Is it really more than normal or does it just appear that way?
We are definitely seeing more homes come back on market than in the past (only now they tend to immediately go back under contract again). There is no specific statistic to track the reasons why this happens, but here is what I am personally observing:
Buyer Remorse – Buyers are getting caught up in the heat of the moment and upping their offer amount and/or terms just to “finally get something under contract”. Then when they do go under contract they get cold feet because it’s way higher than they really wanted to spend. They then back out during the inspection period.
Site Unseen – Because homes are going under contract so quickly many people are submitting offers without ever having stepped foot inside the home. Then they show up for the inspection period and see something they did not see in the photos; could be the home itself, could be the area, or the distance to school/work, etc. Whatever the item, the end result is the same; they cancel during the inspection period.
Appraisal Issues – With the fury of a bidding war, comes higher contract prices. Many buyers are not understanding what that means for the appraisal. A lender will not lend higher than appraised value, so if the home doesn’t appraise, the buyer needs to come in with the difference in cash (if Seller won’t reduce the price and in this market, it is unlikely the seller will reduce the contract price by much, if at all). If the buyer does not have sufficient extra cash to pay the difference, they cannot qualify for the loan anymore and the contract is cancelled.
Loan Issues – Similar to appraisal issues, higher contract prices means the buyer needs to be able to get approved for a higher loan amount. Sometimes they assume they can, but in reality, they cannot. They eventually get declined for that loan amount and the contract is cancelled.
Inspection Issues – Some sellers in this market feel the home should sell no matter its condition and they put it on the market knowing there are issues with the home. Buyers find out during the inspection period and seller is unwilling to negotiate repairs or a reduction in price, so the contract gets cancelled.
Some of the above issues are foreseeable. A good listing agent will be having conversations with buyers agents and lenders to determine if the buyer truly can be qualified for the higher loan amount and/or has the extra funds to bring to closing if they waived the appraisal contingency, etc. The agent should be asking if the buyer has physically been in the property or is the offer site unseen.
But like most things in life, not all agents are created equally. Do your Due Diligence as a Seller to make sure your agent truly knows how to analyze offers and looks at all positives and negatives of the offer, not just the price. In the end, you will always see some homes fall out of escrow even when the offer was properly analyzed, but the likelihood will be reduced with more effort up front.