The purchase or sale of a new home, condo, or cottage is often the single largest investment a person will make in their lifetime. Not only is it a significant transaction, it is also one that is full of both legal and financial risk.
While most buyers and sellers believe that once they sign an agreement of purchase and sale their transaction is a done deal, this is not always the case. In today’s highly competitive real estate market, there are many reasons why a transaction may fail, and a wide variety of unexpected issues that may arise between the contract date and the closing date which may derail the deal.
Some of the most common reasons for a real estate deal may fail include the following:
Buyer Fails to Qualify for a Mortgage
One reason a real estate transaction may fall through is because the buyer is turned down for their mortgage. Both parties to a transaction should know that until the actual closing occurs, the buyer is not guaranteed to receive their loan (even if they are pre-approved).
More stringent mortgage qualification rules recently introduced have impacted many prospective homebuyers who may no longer be able to meet “stress tests” and who, therefore, do not receive their expected funding.
Purchaser Fails to Sell their Existing Property
Another common reason for a real estate transaction not to close is where the buyer’s offer to purchase is conditional upon the sale of their existing home first, and that home cannot be sold, or cannot be sold within the necessary period of time. This can happen for a variety of reasons and can impact your ultimate transaction. Contingent offers do not always make it to closing.
Bank Appraisal Issues Arise
Sometimes real estate transactions fall through because the buyer’s lender appraises the property at a value that is significantly less than the agreed-upon purchase price. Where this happens, and the buyer cannot make up the difference from their savings, or if the seller does not agree to lower the price, the buyer can no longer afford to close the transaction.
In some instances, such as if the purchase price and the appraisal value differ by only a few thousand dollars, the buyer and seller may be able to come to a satisfactory agreement as between themselves, but this is not always the case.
Home Inspection Issues Arise
Unexpected discoveries during a home inspection can, very often, impact the sale of a residential property. If a home inspection reveals a serious flaw or problem that will be expensive to fix (such as a cracked foundation or a leaky roof), this may negatively affect a transaction.
At best, problems discovered during a home inspection issues may result in protracted negotiations over reductions in purchase price. At worst, a buyer will back out of the deal.
Title Inspection Issues Arise
In addition to problems that can arise during a home inspection and can impact a closing, issues may also arise during the title inspection. Some common title problems include outstanding liens, other undiscovered encumbrances, missing heirs, boundary disputes, or errors in public record.
Any of these, if discovered, will cause a potential buyer concern and may impact whether the sale goes through as anticipated.
Purchaser Changes Their Mind
In some cases, an expected transaction never gets to closing because the buyer gets cold feet, changes their mind, or simply backs out. This happens for a variety of reasons, many of which are unexpected and difficult to predict.
Consequences of a Failed Residential Real Estate Transaction
Where the sale of a home fails due to default by either the buyer or the seller, damages (i.e. compensation) may be awarded to the innocent party to return that party to the position they would have been in had the sale gone through:
- If a buyer is unwilling (or unable) to close on a sale, that buyer may lose any deposit they may have made on the property. The seller may also have grounds for a legal claim for additional losses;
- Where a seller is unwilling (or unable) to close on a sale, the buyer may have grounds for a claim for financial damages suffered and may also have grounds for further legal action, such as an injunction to compel specific performance.
If you are a buyer or a seller in the sale of a home, condo, or other residential property, and the sale does not go as planned, you should consult a lawyer to learn about your options and protect yourself and your investment.
The lawyers at DBH Law can help you through every step of a residential real estate transaction, including situations in which a buyer or seller is unwilling or unable to close. Our cost-effective fees relative to other firms help keep our clients’ costs down without sacrificing on responsive, concise and very competent legal advice. Contact us online or by phone at 403.252.9937 to learn how we can help you through your next residential real estate transaction.