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Home > Blog > Real Estate (Commercial And Residential) > More And More Buyers Are Backing Out Of Real Estate Contracts

More And More Buyers Are Backing Out Of Real Estate Contracts

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Although the real estate market is still hot, there are signs of slowdowns. One such sign is the rate at which people are canceling their home purchase contracts. According to a recent article, that rate is on the rise.

Numbers Show Increases

According to the Sun-Sentinel, just over 20% of pending home sales were canceled in the tri-county area. In fact, the cancellation rate is at its highest in nearly 6 years, not counting a sudden spike in cancellations when the COVID pandemic hit. The rate eclipses the national cancellation rate of 15%.

Why the Cancellations?

There are a number of possible reasons for the cancellations. Some point to rising interest rates; a move designed by the government to stem rising inflation, but which also has the effect of making money more expensive to borrow, which leads buyers to back out of contracts. The interest rate has almost doubled from 3% to about 6% since the start of the year.

But other factors play a role as well, such as the likelihood that some buyers may simply be backing off, sensing that real estate prices have gotten too high—or, they are waiting for what is expected to be a gradual cool down of prices.

Inspections also play a role. If a buyer asks a seller to perform repairs pursuant to an inspection, the seller would often say no, knowing that the buyer has few, if any options, in a limited housing market. But in a housing market where there are more homes available, when the seller refuses to make repairs, the buyers are more inclined to just walk away, knowing that there is other inventory available for them.

When Can a Buyer Back Out?

A buyer can back out of a real estate purchase contract under certain conditions stated in the contract.

As mentioned, inspections are one occasion where a buyer could have the ability to walk away from a purchase. If the inspector finds significant problems, and the parties cannot work out who will pay for them, the buyer may have the option to walk away from the deal.

Loan contingencies also allow a buyer to walk away. In some cases, a buyer could get a loan in January, when rates were low enough, but now that they have risen, many buyers may not meet the legal debt to income requirements for loaning. The failure to qualify for financing can lead to a  cancellation of the real estate contract.

Some contacts may also allow a buyer to back out if an unknown title issue arises, which is why title searches are always done as part of your real estate closing. Some liens can be resolved, allowing the closing to continue, but in other cases, the buyer may have the right to walk away from the contract.

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Sources:

sun-sentinel.com/real-estate/fl-bz-buyers-canceling-contracts-20220729-m4igze3honclba37nvo34fxxbi-story.html

floridarealtors.org/news-media/news-articles/2022/08/more-fla-buyers-back-out-contracts-july

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