Trend in real estate deals falling through before completion growing; Florida among the leaders | Real Estate
It’s called “Buyer’s Remorse,” but sometimes it’s not the only reason housing contracts fail to be completed.
And, lately, that trend has been on the rise.
According to a report by Redfin News, 14.9% of prospective sales fell through the cracks across the nation, with Florida accounting for seven of the top 10 cities. Miami was tied for 20th at 21.5%.
James Salas, a 30-year-plus veteran in the real estate industry who, in 2000, opened his own firm, E Realty International in the Square Shopping Center on Key Biscayne, said the 14.9% figure (actually reported as high as 15% by CNBC News this week) is “a little high.”
“I haven’t seen it happening on Key Biscayne,” he said. “Sometimes it’s a finance deal, sometimes people get excited when they see a nice property, they get realistic (about what it’s going to cost).”
Salas said a 2-3% rate of pending sales that aren’t completed would seem normal, whether it’s “buyer’s remorse” or, in general, something occurs during the 10-or-15-day period that a standard inspection would take place.
According to Redfin, which analyzed MLS data in its report, roughly 60,000 home-purchase agreements nationally fell through in June. The 14.9% was the highest percentage on record (since 2017) with the exception of March and April of 2020, when the housing market came to a near-virtual standstill due to the onset of the coronavirus pandemic.
April (11.2%) and May (12.7%) also were high numbers across the nation.
The housing market has cooled somewhat in recent months, which could be a good thing for buyers seeking concessions from sellers.
On June 15, the Federal Reserve lifted interest rates by 0.75 of a percentage point, the third hike this year and the largest since 1994. Meanwhile, consumer prices jumped 9.1% in June from a year ago, reflecting a 40-year high.
Rising mortgage rates have forced some buyers to cancel home purchases, Redfin Deputy Chief Economist Taylor Marr said.
“If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan,” he said in the Redfin News report.
A 30-year mortgage rate of 5.72%, for example, means that about $575 a month would go toward the principal for every $100,000 borrowed.
Buyers did get a reprieve this past week, when the average 30-year fixed mortgage rate fell to 5.3% in the largest one-week drop since 2008.
But, property insurance rates, especially in Florida’s tumultuous market, also have climbed and some policies have been unattainable.
Las Vegas led the way in June with 27% of pending sales canceled. Four Florida cities were directly behind: Lakeland (26.7%), Port St. Lucie and Cape Coral (25.7%), and Jacksonville (25.3%).
The list of metro pending sales that fell out of contract as a percentage of overall pending sales (at least 1,000):
- Las Vegas 27.2%
- Lakeland 26.7%
- Cape Coral 25.7%
- Port St. Lucie 25.7%
- Jacksonville 25.3%
- New Orleans 25.3%
- Palm Bay 24.9%
- Orlando 24.5%
- Phoenix 24.5%
- Crestview 23.5%
Also …
16. West Palm Beach 22.1%
21. Miami 21.5%
According to a report from Zillow, when your real estate listing goes from “active” to “pending,” or “under contract,” it means you’ve accepted an offer, but the sale hasn’t closed yet.
A lot of things can happen in that time, especially when it comes to a contingency regarding home inspection, which could send buyers looking elsewhere because of items of concern found in the inspection report.
Other reasons that deals aren’t closed, according to Zillow and Realty.com :
* Home appraisal is lower than the purchase price: A buyer’s lender won’t finance a home for more than the appraised amount, so the buyer will have to pay the difference in cash, the seller will have to come down on price, or the buyer can walk away.
* Buyer’s remorse: When faced with one of the biggest financial decisions of their lives, some first-time buyers will simply get cold feet. Sometimes, they get caught in a frenzy, especially with little choices and perhaps a deadline to move.
* Property title issues: Before closing, a buyer’s lender will check to make sure there are no liens for unpaid debts or outstanding financial responsibilities on a property.
* Financing falls through: You should always check a potential buyer’s financial status before accepting an offer, whether they’re financing or paying cash.
* Buyer hasn’t sold the home he’s in: Which goes back to affordability. In a home-sale contingency, the purchase would not occur or be postponed if their own home wasn’t sold by a certain deadline.
So, with all these options, it’s not a wonder why many home sales are not completed. But is 15% a scary concern for real estate agents, such as Salas?
“It’s not, really. It’ll come back to normal,” he said, confidently.
