You hunted until your feet were sore, found your dream home and made an offer that was accepted. Time to exhale, right? Not quite.
"The first rule of real estate: All contracts must be in writing to be binding," says David Rosen, a real estate agent with Douglas Elliman in New York City. That means until you actually have a signed contract, your accepted offer is just a good faith agreement. But it all works out, right? Unfortunately, no: A number of pitfalls can come your way before closing, leaving you with no home to move into (and no legal recourse). The good news: Most snags can be be prevented with preparation and speed—you just need to be educated on what could lie ahead. Here, the most common problems buyers run into.
You have a change in finances
Don't let dreams of decorating your future home cloud your ability to pay for it. Allan Zapadinsky, real estate agent at Keller Williams NYC, recalls one buyer who started ordering expensive custom furniture. "They loaded up their credit card with debt, and, when it came time for the bank to issue a Loan Commitment Letter, they were denied a mortgage," he says.
Additionally, if a buyer has a change in income, this can delay things, too. One of Zapadinsky's clients started a new job mid-contract, which caused the co-op board they were interviewing with to reconsider. "Most of the co-ops will want to see a year or two of steady employment," he says. "We had to delay closing for several weeks to explain this to the co-op board."
Fix: The easiest thing to do is keep your debt-to-income ratio as steady as possible. Zapadinsky recommends not making any big purchases and, when reasonable, staying in your current job until you've closed on the house.
Inspections yield bad news
Inspections can change everything. When significant faults—like structural damage, foundation issues, mold or infestations—are discovered, buyers have to decide whether it's worth proceeding, says Glenn Davis, an associate real estate broker with Douglas Elliman).
Fix: While there are no quick fixes for this scenario, you can use a bad inspection to your benefit. "A home that is found to have defects generally tips the scale in favor of the purchaser," says Davis. See if your bank will send an appraiser to determine the actual value of the home with the newly found faults. While you might want to walk away entirely, you also can use the unexpected event to renegotiate the terms of the new contract in your favor.
If you hem and haw to make decisions once your offer has been accepted, you run the risk of losing the house.
Fix: Act swiftly and decisively to close the deal. "Deals move fast," says Ilan Bracha, founder of Keller Williams NYC. "Contracts need to be signed quickly, and, if buyers take their time or are indecisive, the seller can find another buyer and move forward with the new offer."
The seller backs out
Sometimes, the seller will change his or her mind and decide not to go through with the deal. Rosen says this usually occurs when the seller can't find a new place to move to.
Fix: Rosen says that if a seller backs out, they usually change their mind back within six months. If you're really in love with the home, be patient. Otherwise, move on.
Another reason a seller could back out is because he or she received a better offer. It's common for the seller or the seller's agent to continue shopping the property until the contract is executed, trying to get the highest price and sometimes leveraging offers against one another, says Davis. A big tell? They advertise a public open house even after you have a contract out.
Fix: Move quickly. "Attorneys can perform diligence, appraisals/inspections can be done and mortgages can be underwritten in a short amount of time if planned and prepared for," Davis says. Rosen also suggests having your agent stay in close contact with the sellers between when the offer is accepted and closing, sniffing out any risks.
Disorganized paperwork causes problems
In order to get a contract to execute, you need a deal sheet, or the information the lawyers base the contract on, which has needed information on the buyer and seller, terms of the deal and other miscellaneous notes. But if you don't have all the information ready to go at offer, the deal sheet may be incomplete which can delay signing or even lead to the deal falling apart all together, says Bracha.
Fix: Work with your agent to get all your paperwork in order and ready to go before you make an offer. "Having a clean deal sheet with approximate and exact information about the buyer, seller, agents and property details is key to avoiding issues with the signing of a contract," Bracha says.
Interest rates rise
Of all the things that can go wrong after your offer is accepted the scariest thing is an unexpected rise in interest rates," says Rosen. "If rates go up, your ability to qualify [for a mortgage] might be jeopardized," he says.
Fix: Completing the deal in a speedy manner will give rates less time to climb.