Why do so many property transactions fall through?
Why do so many property transactions fall through? Moving home is widely recognised to be one of the most stressful life events.
According to a recent survey by online estate agents Yopa, 40% of homeowners put it at the top of the list of stressors they’d experienced, even outranking getting divorced.
The complex legal process of buying and selling a property in England and Wales has to take its share of responsibility. There are plenty of things that can go wrong before all parties involved are ready to exchange contracts, and it is only at this point that the transaction becomes legally binding.
Unfortunately, not all property transactions proceed smoothly. In 2019, as much as a quarter of all house sales fell through before completion. This is what every home buyer and seller dreads the most, a failed property sale or purchase is inconvenient at best, and financially disastrous at worst.
Let’s take a look at the main reasons why property sales fall through, and see if any lessons can be learnt to minimise the risk to homebuyers.
Property Surveys
A home survey is usually the first opportunity a buyer has to get independent, professional feedback on the condition of the property they are purchasing that a mortgage valuation simply won’t provide. While every buyer will be hoping for reassurance and peace of mind that all is well, the survey may identify building defects and issues of varying degrees of severity and urgency.
Interestingly, although the surveyor’s findings play an important part in the purchasing behaviour, poor survey results only account for a small proportion of property transactions being aborted. Many defects can be quickly put right by the seller, or a price adjustment negotiated to take account of the cost of repairs.
The main dealbreakers relate to structural issues identified in the property survey including:
- Subsidence and structural movement
- Roofing defects
- Damp, condensation and mould
- Timber decay and woodworm
- Electricity, plumbing and heating
- Japanese knotweed
- Asbestos
Mortgage & Finances
Most residential property purchases are financed via a mortgage, and it is best practice for homebuyers to have a mortgage in principle in place when they make an offer. In fact, most estate agents look unfavourably upon buyers who have yet to be pre-approved for a mortgage.
That said, an agreement in principle (AIP) or decision in principle (DIP) is just that. There is no guarantee that the mortgage will go through until the lender has carried out his own valuation of the property in question and finalised all other checks. There are numerous reasons why a lender may not approve the mortgage offer, ranging from problems with the property to irregularities in the application form, or a change in the applicant’s personal circumstances, all of which can lead to the lender’s finance offer being withdrawn.
Cash buyers represent a growing proportion of property buyers in the UK. With no mortgage to worry about, or being part of a chain, this should lessen the chances of the sale falling through. However, it doesn’t prevent buyers from walking away from a bad survey result, or from simply changing their minds.
Gazumping & Gazundering
The frowned upon practices of gazumping (initiated by the seller) and gazundering (initiated by the buyer) are not illegal as such, but they certainly do nothing to strengthen one’s faith in humanity. No wonder that these high-risk strategies have the very real potential to cause property transactions to fall through.
When buying property in England and Wales, exchanging contracts comes relatively late in the conveyancing process – after the property survey, the local searches and the mortgage offer. There is usually a delay of several weeks between an offer being accepted and that agreement becoming legally binding. Within this period, anything can happen.
When a buyer submits a last-minute change to the agreed offer price, often knocking off thousands of pounds, this is a tactical move designed to catch the seller off-guard and with no other option but to accept the revised figure if the transaction is to go ahead. Gazumping happens when the seller finds a new buyer who is in a better position to proceed. Usually, this involves a higher sale price, or a cash buyer with nothing to sell.
Change of circumstance
Sometimes, house sales fall through because someone has had a change of heart. Maybe the seller has decided to withdraw their house from sale for personal reasons, or the buyer has found a better property elsewhere.
A change in personal circumstances, such as a job loss, separation or illness may also prompt a withdrawal from the property transaction. While this can be extremely frustrating, especially if there is a chain involved, there is little one can do.
Property Chains
Chains are common in residential property transactions. It’s a line of buyers and sellers linked together because each is selling and buying a property from one of the others, except the individuals at the top and bottom of the chain.
As many as one-fifth of property transactions fall through because of a broken link somewhere along the chain. Any problem arising anywhere in the chain will have repercussions for the other links. The more buyers/sellers involved in a property chain, the higher the risk of something going wrong. Chains can collapse for any number of reasons, including all of those mentioned above.
What lessons can be learnt?
While the above paints a bleak picture, it is worth noting that around two-thirds of sale fall-throughs are preventable. It may be nigh-on impossible to rescue a deal threatened by failed financing or a terrible survey result, but other behaviours can often be managed with good communication and by keeping the momentum going. It is a fact that many property transactions fall through because of lack of progress or inactivity.
This is where estate agents and conveyancers should do all they can to step up for their clients. Reputable estate agents will have a dedicated sales progressor whose skills are required to ensure the transaction moves along swiftly, thus reducing the risk of circumstances changing or feet getting cold. Solicitors will also appreciate the need for a fast transaction, making sure there are no undue delays in the conveyancing procedure so that contracts can be exchanged within a reasonable timeframe.
Kindly shared by Annie Button
Main picture courtesy of Pixabay
