Can a Pending Home Sale Fall Through?

A pending home sale signifies the period after a seller has accepted a buyer’s offer but before the transaction officially closes. This status indicates that a contract is in place, and both parties are actively working towards completing the sale. While a pending status means the sale is close to final, it does not guarantee completion, and various factors can cause the deal to fall through. Understanding the reasons why a pending home sale might not reach completion, and the general outcomes when it does not, is important for both buyers and sellers navigating the real estate market.

Common Contingency Triggers

Real estate contracts frequently include contingencies, which are specific conditions that must be met within a defined timeframe for the agreement to become legally binding and proceed to closing. These clauses serve as safeguards, allowing either the buyer or seller to withdraw from the contract without penalty if the specified terms are not satisfied.

A financing contingency protects the buyer if they cannot secure a mortgage loan, even after receiving pre-approval. If the buyer’s financial situation changes, such as job loss or new debt, the lender might withdraw the loan offer, allowing the buyer to terminate the contract and typically reclaim their earnest money. Similarly, an appraisal contingency ensures the property’s appraised value aligns with the agreed-upon purchase price. If the appraisal comes in lower than the sales price, the buyer or lender may not proceed unless the price is renegotiated or the buyer pays the difference in cash.

An inspection contingency grants the buyer the right to have the property professionally inspected for defects within a set period. Should significant issues like structural problems, a leaky roof, or mold be discovered, the buyer can request repairs, negotiate a price reduction, or cancel the contract and receive their earnest money back if an agreement cannot be reached. A title contingency allows buyers to review the title search results for issues like undisclosed liens, easements, or ownership disputes. The discovery of such encumbrances, if not resolved, can prevent the sale from closing.

A sale of current home contingency makes the purchase dependent on the buyer successfully selling their existing property within a specified period. If the buyer is unable to sell their home by the agreed-upon date, this contingency allows them to cancel the contract without losing their earnest money. This clause provides flexibility for buyers relying on proceeds from a previous sale, though it can introduce uncertainty for sellers.

Non-Contingency Related Causes

Reasons for a pending home sale to fall through can extend beyond the failure of specific contractual contingencies, arising from various external factors or changes in circumstances. A buyer or seller might experience remorse and simply change their mind about proceeding with the transaction. Such a withdrawal without a valid contractual reason can result in penalties, particularly the forfeiture of any earnest money deposit.

Lender issues can also arise even after financing contingencies have been initially satisfied. A lender might withdraw a loan offer if the buyer’s financial situation significantly changes before closing, such as a job loss, new substantial debt, or a decline in credit score. This situation can derail the sale.

Undisclosed property issues may emerge. Major problems like unpermitted additions, severe structural defects, or code violations that come to light later can prompt a buyer to withdraw, potentially with legal recourse depending on the nature of the non-disclosure. Unexpected legal or zoning complications, such as property line disputes, new zoning restrictions, or unaddressed code violations, can also surface during the closing process. A buyer might fail to meet specific lender conditions required just before closing, such as providing updated financial documents or resolving minor credit discrepancies, leading to the loan being denied at the last minute.

Implications of a Failed Sale

When a pending home sale falls through, several implications arise for both parties involved. A central component is the earnest money deposit, which is a good-faith payment made by the buyer to demonstrate commitment to the purchase. This deposit is held in an escrow account by a neutral third party. The disposition of this money depends on the specific terms of the contract and the reason for the sale’s failure.

If the sale terminates due to a contingency not being met, such as a failed inspection or a low appraisal, the buyer typically receives their earnest money back. However, if the buyer withdraws for a reason not covered by a contingency or breaches the contract, the seller may be entitled to keep the deposit. The formal process for ending the contract usually involves both parties signing a written release to mutually terminate their obligations.

For the buyer, a failed sale means resuming their home search. The seller, in turn, must relist the property. In situations where the reason for failure is not clearly outlined by a contingency or involves a breach of contract, legal disputes can arise.