Entering into a real estate contract by making an offer and having the seller accept it is just the beginning of the home buying journey. After you and the seller sign the paperwork, the real fun begins.
Several things must happen after you and the seller enter into a real estate contract, including the appraisal, inspection and transfer of title. At any point throughout the transactional process, issues may crop up that cause you to wonder not necessarily if you can back out of a real estate contract but rather, if you should. USA Today explores three situations in which it makes sense to let a real estate deal fall through.
One of the most common reasons for the derailment of a real estate contract is an appraisal value that comes in far lower than the agreed-upon purchase price of a home. A bank will only lend a buyer an amount up to the value of a home, less the agreed-upon down payment.
For example, say you agree to purchase a home for $400,000 and to place a 20% deposit of $80,000. You apply for a loan in the amount of $320,000. However, the appraiser determines that the property is only worth $350,000. The bank will only approve a loan for $280,000, which is the home’s value less 20%. To afford the home, either you must come up with the additional $50,000 on your own or negotiate a new purchase price with the seller. Otherwise, you should back away from the deal.
Another common — and perhaps the biggest — reason that real estate contracts fall through is the inspection report. Some issues, such as mold, a crumbling foundation and a dilapidated roof, are so costly to repair that they render just about any deal impractical. If your home inspection reveals problems that you cannot afford or are unwilling to repair, and if the buyer refuses to pay for the fixes or lower the purchase price, it may make the most sense for you to walk away from the deal.
Paperwork snafus are the third and final reason that some real estate contracts never close. Paperwork problems run the gamut and may include title issues that call into question the true ownership of the property; missing heirs who may have a claim to the home; outstanding liens; and money that the seller still owes on the property.
Because a real estate contract is legally binding, you do not want to walk away without first consulting a legal professional. Taking the time to consult with a real estate attorney may save you thousands of dollars and hours’ worth of headache in the future.