Saratoga Springs Real Estate Agent

More buyers suffer last-minute jitters

By: Dian Hymer

August 04, 2003

Anecdotal evidence suggests that there's an increase in the number of failed home purchase transactions this year. Why are more buyers dropping out this year than last year?

One reason may be a heightened level of uncertainty. The economy remains sluggish, unemployment is still rising and home prices in many areas are at all time highs.

The attraction of record-low interest rates may not be enough to offset a buyer's anxiety when he starts to worry about how to make ends meet. When a nervous buyer is faced with unanticipated defects in the home he's trying to buy, his reaction might be to bolt from the transaction altogether.

Recently, buyers in Oakland, Calif., negotiated a purchase at a price that was barely affordable. When defects surfaced, they decided to withdraw from the contract without attempting to negotiate a remedy with the sellers. The sellers were perplexed because they were willing to reduce the price or credit money to the buyer at closing to take care of some of the repairs.

In this case, they buyers had made their offer in competition with another buyer. They offered a price that was at the top of what they could afford. However, it was more than they really felt comfortable paying. Concerns about overpaying and disappointing inspection news were enough to cause them to withdraw.

Although disappointing, it's far better to have a deal fall apart early in the transaction than it is to find out that you're back to square one as you're moving out of the house. Inspections contingencies usually run from seven to 14 days from acceptance. During this period, you should keep your home in good showing condition so that if you do have to put it back on the market you won't waste time restaging it for sale.

HOME SELLER'S TIP: To minimize the chance of a failed transaction, considering obtaining estimates to repair defects you're aware of before you put your home on the market. For example, if you know the roof is at the end of its life, have a roofer inspect the roof and issue a report detailing any recommended work, including a cost estimate. Make this information available to prospective buyers before they make an offer. Fully informed buyers are less likely to back out.

Complications with the buyer's financing are the next most common reason for a real estate transaction to fall apart. You can reduce this risk by requiring the buyer to be pre-approved, ideally before they even present an offer. If this isn't possible, include a provision in the contract that requires preapproval within a few days of acceptance.

The California Association of Realtors purchase contract requires that the buyer's down payment and closing cost funds be verified within seven days of acceptance. If your contract doesn't include such a provision, consider adding it.

Some contracts provide for the buyers financing contingency to run right up until the lender funds to loan. This doesn't usually happen until the day before closing. So, you won't know for sure the deal is closing until the last minute. This makes planning a move difficult. It's preferable to set a date for the financing contingency to be removed that is at least a week or two before the closing date.

Occasionally, a deal falls apart because the property doesn't appraise for the purchase price. If the contract has an appraisal contingency, the buyer may be able to withdraw without penalty.

THE CLOSING: Your real estate agent can reduce the chances of this happening by providing the appraiser with pertinent comparable sales information.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.