NEW YORK (Reuters) – Dan and Kelly Neubeck do not know what sunk the deal to buy their dream house in Chicago last fall. The process was rolling along after they signed the contract for a full-price offer, but somehow their love was unrequited.
The sellers abruptly pulled out and left them bereft.
“It is difficult to not quickly become attached to a home that you really want,” said Dan Neubeck, 37, who works for the city of Chicago. “I would definitely advise home buyers to stay open-minded and not fall in love with a property until the whole process is complete.”
Home sale deals always fall through from time to time, but in today’s tight housing market, the numbers are jumping. A new study released on Wednesday from housing website Trulia.com compiled data on homes that were reported to be “in contract” before their status changed back to active.
Nationally, the failed sales rate nearly doubled in 2016.
Many sales that never closed involved first-time buyers eager to jump into a hot market. Starter and trade-up housing was on the shakiest ground, while deals for new homes and those built before 1920 were the least likely to unravel.
Some metropolitan areas exhibited bigger failure rates than others.
Since 2014, when Trulia began to aggregate data from local multiple listing services all over the country, Las Vegas has led the pack with 7.6 percent of listings reverting back to “for sale” at least once.
Last year, Charleston, South Carolina, had the biggest rise in failure rates, jumping to 10.2 percent from just 1.6 percent in 2015. Other hot spots include Ventura County, California; Tucson, Arizona; and Atlanta.
In Charleston, real estate agent Mark Mitchell attributes most of the failed sales to buyers’ rushing into an extremely popular market where few homes are available.
Mitchell, as associate broker at Dunes Properties, had two sales fail in the last 30 days. One couple was moving to the area from Indianapolis to retire and start a business on the side. Even though Mitchell tried to send them to a mortgage broker before signing a contract, they skipped that step and missed out on a purchase because they did not qualify for the financing they sought.
“They were making an emotional move,” Mitchell said, and now they are downsizing their dreams from a $500,000 house to condos in the $250,000 range.
Another Charleston broker, Jan Snook of Carolina One Real Estate, said her office had about seven failed contracts out of more than 50 last year. Some were because of mortgage problems on the buyer’s side, but more often than not, sales failed because of issues with the houses.
One buyer was intent on a house that Snook knew would have problems because of the age and condition of the roof. The client wanted to try anyway, but lo and behold, the inspection said the roof would need to be replaced to qualify for a loan insured by the Federal Housing Administration.
“It was unrealistic expectations on both sides,” Snook said. “But that’s why those FHA protections are there.”
Felipe Chacon, the Trulia housing data analyst who authored the sales failure study, said buyers need to do their homework and be willing to wait for the right home at the right price.
“You want to get your preapproval for a mortgage and ask a lot of questions because you don’t want surprises to come up,” he said.
From the seller side, Chacon said the most important thing is to be honest about problems and fix what you can.
Also, list the house at a reasonable price so the appraisal does not come back lower than that and cause banks to deny a mortgage.
David Liu, a 33-year-old who works in healthcare information technology, learned that lesson when he put a house on the market near San Francisco in 2014.
Despite the hot market there, two deals fell through because the buyers had financing issues. He eventually sold the house after several price cuts.
Sellers may also want to get a pre-emptive inspection on the property they are trying to sell and start making the needed repairs, said USRealty.com Chief Executive Officer Colby Sambrotto.
This is key in a market like Austin, Texas, said Redfin agent Andrew Vallejo. He said most of the failures he has seen recently are because the topography of the area causes foundation problems for concrete slab homes that are 50 to 80 years old.
Vallejo has hopes for better houses coming on the market this spring. “It almost feels like it was leftovers on the market this past year,” he said.
Editing by Lauren Young and Lisa Von Ahn