How often do contingent offers fall through is an issue that has boomed in the past couple years. Receiving an offer on your home can be cause for celebration — but maybe not just yet. If you’ve received a contingency offer on your home then you need to know how often contingent offers fall through and what you can do to prevent it.
What Does Contingency Mean in Real Estate?
If you receive a contingency offer on your home it means that the potential buyers are willing to purchase the home if certain conditions are first met. If the contingencies they put in the contract are not resolved or fulfilled before the closing date then they can back out of the purchase.
Essentially a contingency offer protects buyers who have a strong interest in purchasing your home but don’t want any surprises that could show up in the home buying process. Sometimes contingencies are required by the buyers lender, requiring an inspection to be done before they will finance the home.
If a contingency offer falls through then you potentially lose out on the earnest money that was put down (depending on your contract wording) and you have to start over with listing your home and looking for new buyers.
What Percentage of Pending Sales Fall Through?
So how often do buyers back out? Well, the good news is, the majority of homes close successfully. A recent survey conducted by the National Association of Realtors in May of 2020 showed that 76% of recently closed home sales contained purchase contingencies and that 9% of those contracts were terminated.
This percentage shows a higher than average trend, likely due to the Covid-19 pandemic which saw job loss and financial concerns being leading factors to house purchases falling through. Prior to the pandemic the NAR reported that houses fell through due to contingencies about 2-5% of the time.
Reasons Why Pending Sales Don’t Work Out
There are many reasons why a pending sale might fall through, here are the most common factors:
Home Sale Contingency
A buyer could put a contingency in place that allows for them to sell their own home first before closing on your home. This type of contingency protects the buyer from being stuck with two mortgages but it puts you at a higher risk of your home falling through unless you’re experiencing a competitive sellers market. The risk with these types of contingencies means you might be prepared to move and closing on your own new home when the seller backs out at the last minute when they can’t sell their current home.
Home Inspection Contingency
A seller could put an offer contingent on the results of the home inspection report. If the report comes back and shows need for repairs then the buyer could ask for you to make those repairs before selling their home. If you refuse to make the repairs the buyer could back out of the contract based on the contingency and keep their earnest money. To avoid this type of risk consider paying for your own home inspection report before selling so buyers can see the status of your home and feel confident moving forward with closing.
Sometimes a buyer will not be pre-approved and they will ask for a contingency stating that the home purchase will go through pending the lender approving the mortgage. Working with pre-approved buyers only will help protect from a deal falling through with this type of contingency.
According to Fannie Mae, only 5% of home appraisals come in low, so this type of risk isn’t as high as others. An appraisal contingency means the buyers offer is dependent on the home coming in with an appraisal for higher than or equal to the offer amount. You can minimize the risk by having your home professionally appraised before listing so buyers and lenders know exactly how much the home is appraised for before making an offer.
How to Avoid The Risks of Contingent Offers
As mentioned before, doing your due diligence by working with pre-approved buyers and paying for a home inspection and an appraisal before listing your home can help negate some of the risks and avoid contingency offers all together. But what if you can’t afford all the extra costs? What if you don’t have time to wait on buyers that could just fall through before closing? What if your home falls into the “poor condition” category, making it more likely that it would not go through with contingencies in the contract?
In these situations your best bet is to avoid the uncertainties and work with a professional who can pay cash and work quickly to purchase your home with no contingencies at all. Gary is an investor who is ready to make a fast cash offer on your home and he will purchase the property in any condition. If you can’t afford repairs required by home inspections or you don’t have the luxury of time on your side and need to sell quickly then Gary Buys Houses is the trusted home buyer to turn to in the state of Utah.