Those buying residential real estate in New York have to prepare for a lengthy process. First, they have to start looking for properties that meet their needs. They have to arrange tours at those properties and then make offers on the ones that they think would work for their family. Once a seller accepts an offer, a buyer typically has an obligation to follow through with the proposed transaction.
However, sometimes real estate transactions fall apart between when the seller accepts an offer and when everyone actually signs the final paperwork. What are the most common reasons that a real estate closing may not occur despite the buyer and seller reaching an agreement about the price and timing for the transaction?
Inspection or appraisal issues
Sometimes, buyers make an offer that they feel is appropriate based on the condition of the property, only to discover when reviewing the inspection report that there are many previously undisclosed and concerning issues with the property. If there are issues with the property’s condition and the seller and buyer cannot negotiate a resolution to those undisclosed property issues, the closing could fall apart. The same could potentially happen if an appraiser determines that the property isn’t worth the amount the buyer offered to pay. The lender may not provide financing for the transaction if there is a sizeable appraisal gap.
The appraisal coming in unexpectedly low is only one of the numerous situations that could leave the buyer unable to obtain financing for the property. The buyer might lose their job or have some kind of personal emergency, like a car crash, which overextends their credit and leaves them unable to finalize the mortgage. In all with the rarest scenarios, a buyer who cannot secure a mortgage for a property is a buyer who will not complete the transaction, as most people seeking to purchase real property do not have the liquid capital on hand to pay the full purchase price themselves.
Secondary real estate transaction issues
Sometimes, the success of a real estate transaction hinges on another real estate transaction successfully occurring. If the buyer cannot sell their home to use the equity they have built toward the purchase price or if the seller is unable to locate a new property to move into after closing, it may not be possible to follow through with the transaction as originally intended.
Oftentimes, real estate buyers will include contingencies in their offers to protect them from the loss of their earnest money in these situations. Both buyers and sellers who understand the issues that may lead to the cancellation of a residential closing can more effectively protect themselves at every stage of the process.