The share of home purchase contracts that were canceled before closing in the D.C. metro is slightly below the national average, but it ticked up in December, and sales that fall through are more of a problem for sellers than it is for buyers.
Redfin reported that 14.3% of pending home sales did not close in December, up from 12.6% in November. Nationally, 16.2% of contracted sales fell through last month.
When a contract falls though, not only did the seller just lose a sale, but the seller may have headwinds to overcome when they re-list the home.
“It can be particularly damaging to the seller, because if they re-list the home they can have this Scarlet Letter on the home’s history that shows that an offer was canceled. That could make buyers start to question if there is something wrong with the home, why did the buyer back out, maybe this home is overvalued,” said Daryl Fairweather, chief economist at Redfin.
A buyer can walk away from a deal at any point between contract signing and sale closing. One possible reason for the elevated level of contracts falling through is the increase in buyer contract contingencies, almost unheard of during the pandemic-era buying frenzy, with buyers competing with each other for the few homes that were for sale.
Competition still exists, with inventory still extremely low, but sellers are more willing to consider contingencies now.
“When you have contingencies, it increases the opportunities for the buyer to back out of the deal. Maybe during the inspection period they can back out. Maybe with a financing period, if they cannot finance the purchase anymore. If they’ve lost their job, they can back out,” Fairweather said.
Aside from contingency clauses that give sellers an out, canceling a contract for no agreed-upon reason is still possible. In most cases, it means surrendering their earnest money, or deposit made upon signing a contract. That is typically 1% of the purchase price.
A seller can reduce the risk of a contract falling through by asking for more earnest money. They can also stand their ground if a contingency request, such as repairs flagged after an inspection seem unreasonable.
Despite the modest rise in cancellations, Redfin reported that pending home sales in December rose 4%, the largest monthly increase in more than two years.
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