What happens if a house purchase falls through?
In 2019, a reported quarter of all property purchases fell through. For both parties involved, this is stressful and frustrating and can set plans back by months. But it’s not always the end of the road. In this guide, we’ll explain the reasons why a house purchase might fall through, the options available to buyers and sellers, and the financial implications of a failed sale.
Why a sale could fall through
While you might not be able to prevent a sale from falling through, there are some things both buyers and sellers can do to reduce the likelihood of it happening.
To understand how you can potentially salvage your sale, you need to know the most common factors behind purchases falling through.
- Mortgage valuation issues.
o When a mortgage company are assessing an application, they perform an independent valuation of the property for sale. If they determine that the property is worth less than the agreed selling price, they’ll only lend based on their valuation and refuse to give the rest of the money.
o As a buyer, you can use this to negotiate with the seller. Alternatively, you may be able to appeal the valuation or apply for a mortgage with a different lender. To prevent running into this stumbling block, research property and sale prices in the area before making an offer to get a good idea of what it’s worth.
o As a seller, get several different valuations from estate agents to understand how much your property is worth. This will also help to give you a range and understand the minimum and maximum value of your property.
- Mortgage offer expiring
o A mortgage in principle demonstrates to the seller that, based on the general information provided, the buyer can get a mortgage on the property. This lasts for six months. The mortgage company will make an offer after they’ve carried out all the financial checks and assessed the property. A mortgage offer also has an expiry date but can be extended if complications delay the sale.
o For buyers, a mortgage in principle should be secured when you’re ready to start viewing properties with a serious intention to buy. It’s important that when you decide to start looking for a property to buy that you don’t make any serious financial changes, like changing jobs. This will help keep the mortgage process smooth and efficient.
o As a seller, make sure you’ve seen proof that the buyer has the right finance in place before you accept the offer.
- A break in the chain
o Unless you’re a first-time buyer, are purchasing a vacant property, or the seller is moving to rented accommodation, there will be a chain of other buyers and sellers. This is an unavoidable part of buying a property, and as a result, you’re reliant on other people’s sale and purchase to run smoothly. Because of this, a party being ‘chain free’ is appealing for buyers and sellers.
o For both buyers and sellers, the only way to keep the chain moving is to chase your estate agent regularly, conveyancer or solicitor to find out the status and keep the process moving.
- Problems identified in a survey
o Surveys are a standard part of buying a property. There are many different types, but they mainly identify structural problems and any issues that could impact the decision to purchase. Surveys are advisory and it’s up to the buyer as to whether they proceed or not.
o As a seller, you can avoid any nasty surprises and get a survey done before you put your home on the market. This will be a useful selling point for you and will reassure buyers that the sale should progress smoothly.
o As a buyer, make sure you get the right survey and take the time to understand the feedback. Before you make an offer, research the area to see if there has historically been any work that a survey would flag such as mining.
o Gazumping is when a seller has agreed to an offer but then accepts a higher offer from a different buyer. It’s stressful and frustrating, but unfortunately, there’s not a lot that buyers can do to prevent this.
o After the offer is accepted, buyers can request that the property is taken off the market to prevent more viewings. Sellers don’t have to agree to this though.
o Once a buyer is gazumped, they can approach the seller and emphasise why they make a good buyer. Or, a buyer could meet or beat the new offer.
Pulling out of a house purchase before exchange
Exchanging contracts is the point at which you can’t back out and are legally obliged to purchase the property. Up until this point, either party can pull out of the sale.
If this happens, there are options available for both parties to either salvage the sale or walk away.
Seller pulling out of house sale
If the seller pulls out of the sale before exchanging contracts, it’s likely the property will be taken off the market. As a buyer, there are a couple of things you can do to try and salvage the sale.
1. Find out why they have pulled out
The most critical thing you can do is to find out why the seller has pulled out, which may help you come to another agreement. For example, the seller’s upper chain may have broken down, leaving them without a property to move into. If that’s the case, you may be able to negotiate and essentially pause the purchase until the seller has found a property.
2. Speak to the estate agent
Making your intentions clear to the estate agent and solicitor may help improve the situation. Regular ongoing communication to assess the situation may help to keep the sale moving. By talking to the estate agent and solicitor, they’ll also be able to give you advice on what to do if the sale has failed.
3. Think about the next steps
If the seller has indicated they’re pulling out, this is your opportunity to take stock. Think about what you like about the property and what you don’t like. This will help you focus and decide if you do want to pursue it or move on.
Buyer pulling out of house sale
If the buyer pulls out of the house sale, there are a few paths a seller can take to keep the sale moving.
1. Why have they pulled out?
Just like the inverse situation, if it’s not already clear then find out why the buyer has pulled out. This may help you be able to negotiate and get the sale back on track. For example, the survey may have revealed damp which needs to be taken care of. In this instance, you can either negotiate the price of the sale to accommodate the costs of getting the damp fixed, or you can fix it yourself.
Another problem may be that the mortgage company has estimated your property to be worth less than the agreed offer. If this happens, you can either get another estimation from an estate agent to contest the value, or agree to the lower value.
2. Find a new buyer
If there’s no room to reduce your asking price or the buyer won’t budge, there are a couple of options open to you.
You can either invite interested parties to make offers or start listing your house again. If you’re in a rush to sell, give priority to cash or first-time buyers.
What happens to a mortgage offer if a sale falls through?
This all depends on the policy of your lender.
Some lenders will let you transfer your mortgage to a new property, but many will require a new mortgage application for your new property. Other mortgage companies will value your new property to adjust the amount they lend you.
If a couple of months have passed since your mortgage was approved for the previous property, your lender may request your latest payslips.
The other costs incurred are a little more complicated.
Some solicitors and conveyancers won’t charge you for their services if the sale falls through, but this is unlikely.
If you’re close to completion, your solicitor will have paid for surveys and various legal fees. If you’ve not already paid for these costs, you will need to do so.
In the agreement you signed when you enlisted the services of your solicitor or conveyancer, the fees your liable for if the sale falls through should be clear.
For estate agent fees, sellers will be expected to pay the fees but won’t have to pay commission as the property hasn’t sold.
- Conveyancing delays
o Conveyancing is the legal process of buying a house. There are a lot of steps and issues are often out of the hands of conveyancers or solicitors. However, buyers and sellers can become impatient and pull out because of this. As with gazumping, there’s not a lot either parties can do other than be patient and prepared.