When engaged in a real estate transaction, it is important for both the buyer and the seller to understand that the transaction is not final until closing. There are many events that need to occur between an accepted offer and the closing, which can give rise to numerous opportunities for the transaction to fall through.
So why exactly do real estate transactions fail? Below are a few of the most common reasons.
The buyer not being able to sell their property
In many residential transactions, the deal could fall through if the potential buyer is unable to sell their home and is therefore unable to purchase the home in question. This also happens in commercial transactions, if the buyer wishes to move offices but must sell their previous premises first. If you’re the seller in a transaction and the sale is contingent on the buyer being able to sell another property, you should know there is a greater likelihood of the sale falling through than in transactions where there is not such a contingency in place. This can often include 1031 exchange-contingent closings.
Problems with the property inspection
Most properties should go through an inspection before the transaction proceeds. The inspection period is typically within the first week or two after the seller accepts the buyer’s offer. The inspection offers the buyer an opportunity to discover any undisclosed defects in the property, including problems with mold, pests, structural issues, property damage or roof leaks.
The seller can avoid any unpleasant surprises by having the property inspected beforehand and fixing any issues the inspector finds, helping make the property more marketable.
The buyer gets turned down by their potential lender
Not every buyer gets pre-approved by a mortgage lender before purchasing a property. Even then, having a pre-approval letter is no guarantee that the buyer will actually close on their loan. Mortgage loan rejections are among the most common reasons why real estate deals often fail to close. Changes in circumstances can prompt the bank to rescind its offer to lend, including job loss and other sudden financial hardships.
Problems with the appraisal
Real estate transactions are often contingent on a satisfactory appraisal. If there are issues with the appraisal, generally the deal will have to be modified, or the bank will likely not issue the loan. The biggest issue will be if the appraised value of the property comes under the amount of money for which the buyer is requesting a loan. In these situations, the bank may elect to reduce the loan amount or rescind its offer to lend altogether.
For more information surrounding the causes of why real estate transactions fail, and how you can avoid these potential pitfalls, contact an experienced real estate attorney in the U.S. Virgin Islands.
J. Nash Davis is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full-service business law firm on St. Thomas, U.S. Virgin Islands.