How Often Do Contingent Offers Fall Through?

Most of the time, a contingent offer leads to a final sale. Contingencies allow the buyer and seller to walk out of a deal if anything changes. More than 95% of all contingencies end up in a complete deal, but a deal could fall through. If you are selling real estate for the first time, it’s good to know what can cause a contingent offer to get withdrawn. This guide explores some of the common causes.

Understanding Contingent Offers

Contingent offers are when a buyer and seller reach an agreement but establish some wiggle room in the contract. The buyer and seller may have some concerns they want to address shortly before finalizing the deal. Both parties agree on the price for contingent real estate but must initiate due diligence before the property swaps hands.

How Often Do Contingent Offers Fall Through?

Less than 5% of all contingent offers fall through. Most contingent offers go through without issues. Buyers and sellers conduct research and due diligence before the closing.

8 Common Reasons Why Contingent Offers Fall Through

Although a small number of contingent offers fall through, it still happens. These are some of the most common reasons deals don’t make it to the finish line.

1. Buyer Faces Financial Difficulties

The buyer can go through financial hardships while waiting for the deal to be finalized. For example, the buyer could lose their job right before the closing. This event can make the buyer more likely to pull out of the deal since mortgage payments may be more difficult to pay.

2. Home Inspection Reveals Major Issues

The buyer will do their homework before buying a property. Most buyers hire home inspectors to assess the property before closing on a deal. If the property has significant issues, such as mold, foundational issues or anything else noteworthy, it can stall the agreement. The buyer may request a lower price or walk away from the deal.

3. Title Issues Arise

Some contingencies fall through because of the seller, and a title issue can be the culprit. Lenders usually require title insurance policies during the closing process. If there is an unresolved lien, claim or judgment, the seller must get it settled before the deal can go through. 

4. Appraisal Comes in Lower Than Expected

Some properties become contingent before appraisals reveal the current value of the home. If the appraisal indicates the property is less valuable than the agreed-upon price, the buyer may request a lower price. 

The lender may also step in and require that the property is sold at or near the appraised price for the buyer to receive a mortgage. Lenders rarely approve mortgages if the buyer purchases a home above its appraised value. If the seller does not want to sell the property at a lower price, the deal can fall through. 

5. Buyer Gets Cold Feet

Buyers are not required to go through with a contingent offer. Some people may suddenly walk away from a property because they don’t like the neighborhood, want to shop around a little more or for another reason. Buyers can walk away for any reason, but this is relatively rare.

6. Market Conditions Change

Changes in market conditions can cause the buyer or seller to walk away from a deal. If the Federal Reserve raises interest rates, the buyer will suddenly have a higher interest rate than anticipated. The higher mortgage rate can prompt the buyer to walk away since the higher rate will raise the monthly payment. A natural disaster or a similar event in the area may also make properties less desirable and prompt the buyer to look for a house in another neighborhood.

7. Seller Receives a Higher Offer

Sellers want to make the most possible money when parting ways with their real estate. It’s possible for a seller to receive a higher offer from a different buyer. Under this scenario, the seller is likely to walk away from the existing contract and accept the higher offer. The seller may also attempt to initiate a bidding war between two buyers to maximize profit.

8. Contingencies Are Not Met on Time

Contingencies have deadlines to ensure the deal goes through in a timely manner. If contingencies are not met in time, the buyer or seller can walk away from the agreement.

What Happens If a Contingent Offer Falls Through?

If a contingent offer falls through, the buyer and seller will not make it to the finish line. Both parties are free to go in different directions and look for new parties to fulfill their goals. The buyer can look for another property, and the seller can accommodate another buyer. The buyer may also receive their security deposit back depending on how the contingent offer fell through.

How to Prevent Contingent Offers From Falling Through

Buyers and sellers can work together to prevent contingent offers from falling through. These are some of the strategies you can use:

• Offer a shorter contingency period: A shorter contingency period offers less room for error. If the contingency period is drawn out, the seller may become impatient and entertain higher offers.
• Maintain active communication: Frequently staying in touch with the seller can make that person feel more comfortable working with you.
• Get pre-approved before seeking contingency: The seller will feel more confident if you already have the lender on your side. You will also have fewer hiccups along the way.
• Waive inspection: This is risky, but some buyers do this as a last resort during a seller’s market. You don’t want to give up too much to make your contingent offer more enticing. For most buyers, it makes more sense to pay for an inspector than skip this step.
• Sell and rent: Some buyers need to sell their existing property to have enough money for the down payment. However, sellers may want to work with a buyer who has more certainty. Selling your existing home first and temporarily renting can increase the likelihood of getting your contingency offer accepted.

Getting to the Finish Line with a Contingent Offer

Although some deals fall through, the odds are in your favor. More than 95% of deals go through, which is good news for buyers and sellers. Make sure you negotiate the essentials, such as having an inspector look over the property before closing. Maintaining frequent communication with the seller can ensure you are both on the same page and reach an agreement.

Frequently Asked Questions