Buyer cancellations are on the rise.
With higher interest rates, more inventory, and buyers holding inspections, it makes sense that more consumers are willing to back out of a deal.
An Uptick in Terminated Deals
In March 2020, 17.6% of home sales fell out of contract, the highest cancellation rate from 2017-2022. This was the start of the pandemic when home buying – and everything else – was on hold.
Shortly after, terminated deals hit their lowest levels, dropping and hovering between 11-12% from June 2020 to May 2022. With intense demand, buyers were doing everything from waiving home inspections to moving up the closing date simply to have their offer taken seriously. So once they finally went under contract, few would even consider canceling a deal.
In June 2022, we began to see a shift in the market. Along with the shift came an increase in canceled deals, with 14.9% of under-contract deals falling through before closing day.
Prepare Your Clients
When working with sellers, ensure you manage expectations for this shifting market. Remember, for the past two years, they’ve heard stories of multiple offers, closing well over the asking price, and buyers willing to forgo all contingencies.
While sellers are still likely to receive strong offers, there aren’t as many buyers who will enter sight unseen while waiving inspections and appraisals. Discuss any known issues and what it could mean for sellers moving through the transaction. Knowing up front they may need to reduce the price or make some updates will help to eliminate shock.
If you are working with buyers and they decide to back out of a deal, be sure they are well-informed on the costs of breaking a contract. Discuss how contingencies protect them before sending in an offer and be sure to discuss all financials, including the cost of repairs.
Negotiate After the Inspection
For the past two years, many buyers were willing to do inspections for informational purposes only. This means agents didn’t have to worry about negotiating after the inspection.
Whether you are representing the buyer or seller, carefully review the inspection report after it comes back. Note any issues and review them with your client. Sellers should expect some negotiation, especially if there are significant issues. On the other hand, buyers need to remember that it is still a competitive market. So while they can ask for items to be fixed, they’ll also want to consider what they can handle themselves.
Have a Back Up Plan
No deal is ever finalized until closing day is over. When a deal does fall through, it’s up to you to act swiftly and have a plan in place.
When working with a seller, be transparent about why the buyer backed out. If it was due to their financial situation, there’s likely nothing to change. But if something came up at the inspection, have an honest conversation with your seller about their options. Do they want to fix the issue themselves or lower the asking price? These conversations can be difficult, but they need to happen if the seller’s goal is to move forward.
If working with a buyer, remind them that new listings come on the market daily. While many are eager to get into a new place, inventory is starting to rise. With a bit of patience and a strong offer, you’ll be able to help them secure a home.
With this shift in the market, the skills you need to help your clients are also shifting. How will you help clients through a terminated deal?
