In September, roughly 12% of homes for sale in the D.C. metro that went under contract saw the sale fall through. Nationally, contracts signed to buy a home in September rose, but closed sales fell to the lowest level since the early days of the pandemic, according to Redfin.
With rising mortgage rates, a top reason for canceled sales is buyer financing contingencies. The rate they originally qualified for may have gone up, lowering the loan amount they are qualified for by closing time.
Buyers may be leaning on inspection contingencies more frequently as well, or discovering problems after making an offer that the seller doesn’t want to repair.
For a buyer who cancels a contract, the consequences are not that great.
“Back when interest rates were really low and there were multiple offers, one way buyers could get an offer accepted was to put down a lot of earnest money. But buyers don’t need to do that anymore, so when they’re walking away, they’re not walking away from their life savings. They might be walking away from just a couple of thousand dollars,” said Redfin chief economist Daryl Fairweather.
But sellers should make every effort, to the extent they are willing or able to, to avoid a sale falling through.
When it happens, unlike the buyer who walks away, the consequences for the seller could be significant.
“The problem for sellers when a buyer backs out is that it is kind of a Scarlet Letter on the home. When they re-list the home it is public record that the home was recently listed and a buyer backed out. That could send a signal to future buyers that there is something wrong with the home, whether or not that is true. It just makes buyers very anxious,” Fairweather said.
Nationwide, roughly 53,000 homes that went under contract in September had sales canceled, equal to 16.3% of home sales contracted. Redfin says that is the highest percentage since October 2022, when mortgage rates first surpassed 7% for the first time in two decades.
