Why do Homes Come Back on the Market?

You found your dream home, but before you could put in an offer, BAM! It was under contract. Then, a few weeks later, you saw it come back on the market. This may have caused conflicting thoughts. On one hand, excitement for the opportunity to purchase the home you fell in love with. On the other hand, apprehension about why the home came back on the market. Before letting your mind wander too much, let’s explore some of the many reasons that homes come back on the real estate market.

Buyer financing falls through

One of the more common reasons that a house may come back on the market is when a buyer’s financing falls through. If a buyer’s mortgage application is denied or they cannot secure the loan, they will have to back out of the home purchase. According to NAR, in 2021, 72% of first-time buyers put down less than 20% of the payment. This means that nearly ¾ of those purchasing a home for the first time were taking out loans for more than 80% of the total home price. When loans become more sizable, there is an increased chance for financing to fall through. For this reason, and in general, it is encouraged that potential buyers secure a home loan preapproval at the beginning of their home search.

A change in circumstances

A change in circumstances can mean a variety of things. For starters, it could simply be a case of buyer’s remorse. Purchasing a home is a big decision, and depending on the market, can be a hurried and rushed process. Sometimes homes come back on the market simply because the buyer backs out of the contract. Certainly, there could be other situations affecting home sales as well. For example, if a buyer experiences major life events such as divorce, job loss, employment relocation, or another significant change in financial circumstances, they may back out of the purchase agreement. Although backing out of a contact is rare, and only “3.9% of real estate sales fail after the contract is signed,” a change in circumstances can contribute to this end result.

A low appraisal

If a home appraisal comes in lower than the agreed purchase price, it can put the buyer in a pickle to bridge the gap in financing. Let’s check out an example of what this means:

First, keep in mind that the loan-to-value ratio impacts how much the mortgage lender will finance for the loan. The maximum financing for an FHA loan is 96.5%.

A buyer and seller agree on a $400,000 home price.

This means that on an FHA loan, a lender will only finance $386,000, and the buyer will have to cover the remaining $14,000.

If the home appraises at $385,000, the lender will now only finance $371,525, meaning that the buyer will need to cover $28,474 total, or $14,475 additional.

If the buyer cannot pay the additional amount to cover the gap, they may back out of the purchase agreement if the seller does not agree to lower the sale price. For further reading on low appraisals, check out our blog post titled, “What Happens if a Home Doesn’t Appraise?”

Home inspection issues

Most buyers anticipate some issues with a home inspection report. After all, no homes are perfect. However,  sometimes issues arise that are greater than anticipated. If an issue arises that is a deal breaker for a buyer, and the seller is unwilling to fix it or renegotiate the purchase agreement, a buyer may opt to back out, rather than tackle the issue themselves. Often, this occurs when the necessary fixes are beyond the financial scope that the buyer is comfortable with or able to provide. Of the many reasons a home may come back on the real estate market, this is the reason we would advise buyers to approach cautiously. However, it still may not be necessary to sound the alarm. Let’s dive deeper.

If a purchase agreement falls through due to home inspection issues and the house has come back on the market, legally, the sellers are obligated to inform potential buyers of these known issues. A realtor will be able to share this information with you ahead of time so that you can figure out if it is a deal breaker for you, or not, before putting in your own offer. What we have seen more times than not, is that once a seller is required to declare a home inspection issue, they know that it may limit their pool of potential buyers and as a result, will often make the decision to fix the issues before relisting the home. Regardless, if you are working with a professional, you will be able to navigate this scenario in a way that you are comfortable with.

Failed contingencies

Sometimes, due to a buyer’s financial situation, they may make the purchase of a home contingent on the sale of their own property. In this case, the buyer and seller agree on a specific timeframe. If the buyer’s home is not sold within this period, and the seller is unwilling to amend the timeframe, the deal may fall through, and the home may reenter the market. According to Home Bay, “6% of recently terminated home contracts were due to contingencies not being met.” So, while not super common, it is still a reason why we see homes being relisted.

The reasons homes may come back on the housing market are not limited to those above, but these are the most common reasons we see this happen. Real estate transactions have a lot of moving parts and can be more complex than initially thought. Working with a real estate professional is imperative during the homebuying process. They can help you work through different scenarios as you house hunt. Furthermore, when you wish to go under contract, they can use their knowledge and experience to create a well-drafted contract and mitigate any risks that can arise. If you’d like to partner with someone who continuously works to become an expert in navigating real estate complexities, contact the Oak & Main Real Estate Group today.