3 Things That Can Tank Your Home Sale

Think you can sell your home fast? It’s true that for the past two and half years or more, the housing market across the country and throughout Pennsylvania has suffered from a lack of housing supply in relation to booming demand. From Philadelphia to Schulykill Haven, the entire Eastern part of the state saw record home sale prices and low days on market. Sellers enjoyed a market where buyers paid cash, waived inspections, and bid prices up tens of thousands over asking. Indeed, it was a good time to sell! Now with market conditions cooling, sellers can expect to see higher days on market and the return of more traditional home sale contingencies. Here’s 3 things that can throw a wrench in your home’s sale and how to avoid them.

Home Inspections

Home inspections are intended to protect consumers from purchasing a property with major issues that create either unsafe living conditions or an unforeseen financial burden. This includes the scary stuff like cracks in the foundation, a bad roof, and faulty electrical but it often includes smaller items, too, like that old creaky floorboard in the bedroom that you hardly notice anymore and the leaky faucet in the bathroom.

Home inspectors will carefully comb through your property looking for potential problems and provide would-be buyers with a reporting detailing their findings and estimating repair costs. The buyer’s real estate agent will likely ask you to either make the repairs or negotiate for credits at closing—chipping away at the cash you’ll receive for your property. In some cases, a lengthy inspection report could even tank your sale altogether.

So how do you avoid a bad inspection? First, if you have deferred maintenance, you could fix it before listing your home for sale, especially if it’s a structural item like the roof.  While a brand new roof isn’t going to add any resale value to the property, a roof that is past it’s useful life can certainly send a buyer running. Second, if you know there’s a major ticket item that needs to be addressed, you could also offer a preemptive credit to potential buyers so that they can fix the problem after settlement. A good realtor who specializes in listing homes (as opposed to a buyer’s agent) will be essential to navigating this. Look for an excellent negotiator who won’t bend to every request from the buyer’s agent.

Another option is to sell your home as-is. This is where you sell your house with the understanding that you will not be making any credits for items that come up on an inspection report. This is a simple solution, but there is a catch. You won’t get top dollar. So if you were hoping to get the same price as your neighbor’s fully renovated home that sold in a bidding war for $50K over asking, you probably won’t have the same luck. To keep the most money in your pocket, you may want to skip the realtor altogether in this scenario. When you sell your home off-market, you won’t pay realtor commissions or other typical fees associated with selling a property with agent.

 Appraisal Contingencies

Appraisal contingencies have not been as common as they once were due to steep competition in the marketplace, but as the market begins to cool off due to higher interest rates, we will start to see these again. An appraisal contingency allows your contracted buyer to walk away from the sale if the appraised value of the home comes in below a specified value.

Typically speaking, a buyer would ask you to reduce the price to be closer to the appraised value, which could be tens of thousands less than you originally agreed to sell for. Buyers utilizing FHA financing are most likely to include an appraisal contingency.

To avoid this scenario, you could elect not to accept offers that include an appraisal contingency, but with interest rates creeping up, you could be facing fewer buyers in the marketplace. One way to mitigate this risk is to study the comparable home sales in your neighborhood over the last six months. If you’ve accepted an offer that’s in line with similar homes that have sold in your area, you can feel confident that the appraisal will hold.

Financing Contingency

A financing contingency allows a buyer to walk away from a sale if they cannot find a lender who lend to them at or below a specified interest rate. If you’ve been paying attention to the news, you know that the Federal Reserve recently raised interest rates by .75 percent, and they are expected to raise them again by the end of the year.

Let’s say you accept an offer from a qualified buyer who is already approved by their lender for a 30-year fixed rate mortgage of 3.75%. Their financing contingency specifies that they must be able to close with a rate of 4.25% or lower. You’re in the clear. However, if the Federal Reserve were to raise rates by another .75 points before your closing date, their new rate would now be 4.5%. In this case, the buyer would be entitled to walk away from the purchase.

To avoid having your home’s sale cancelled due to financing, cash is king. Securing an all-cash offer will eliminate this risk.