Now the real estate pendulum has swung towards normal market behavior after 24 months of record increases in values, both buyers and sellers are having to recalibrate their negotiation positions.
When a market transitions, you have to work a little harder to negotiate successfully. That’s true for both the seller and the buyer because you’ve got to find common ground if there’s to be a deal.
If you find yourself in a tough negotiation, it can be helpful to understand why some real estate deals fall through.
Structure buster
A home inspection by a licenced inspector is essential to any buyer’s due diligence. Major issues, such as rising damp or crumbling foundations, are deal-breakers. A buyer can wait for the problem to be fixed or negotiate a price to cover remediation costs. A lender may become involved to ensure the work is completed to its satisfaction.
Deal is contingent
Many purchases fall over because the buyer must sell their own home first. In most cases, buyers are upfront about this issue, but it’s disappointing when this scenario plays out. A bridging loan fixes this problem if the buyer is willing to take on the expense.
Cold feet
In a market where buyers constantly worry about FOOP (fear of overpaying), they will occasionally back out. Buyers who do this often feel they’ve been pressured into a deal. In real estate, there’s nothing worse than buyer’s remorse, but it’s frustrating for the seller. If a buyer leaves late in the deal, there are potential legal and financial ramifications.
Cash withdrawal
No buyer should commit to a purchase without a pre-approved loan if they don’t have the cash. Credit is becoming increasingly hard to secure with interest rates rising. So, if a lender pulls the proverbial rug from under a buyer, that’s bad news for everyone. A seller would be advised to extend the negotiation to allow the buyer to find a new lender.
Appraisal shock
Sometimes, a lender will decide a buyer is paying too much and refuse a loan. In effect, it’s saying the loan is worth more than the property. The buyer must make up the difference. A seller should encourage the buyer to find an alternative lender. It’s not a common scenario but can feature in a transitioning market.