11 June 2020
You have worked incredibly hard to get your property ready for sale. You received lots of interest and you have accepted an offer. Congratulations, that’s all great news. You might be tempted to think ‘job done’.
Unfortunately, that’s not quite the case as there is still some considerable work to do. In fact, the data shows that the number of transactions that fail to complete after an offer is accepted can be between 30-40%.
The positive news is that the reasons why transactions ‘fall apart’ are generally well understood and, with some pre-planning and the help of a good agent, you can normally ‘get ahead’ of any issues and give yourself the best chance of successfully completing your sale.
Some of the main reasons why transactions fail to complete are:
The buyer has second thoughts
While the buyer might appear to be ‘excited’ and ‘totally sold on your property’ when undertaking a viewing, it is not uncommon for them to have second thoughts after they make an offer. When the adrenaline wears off and the logical side of the brain wrestles back a little more control, buyers tend to start to question their decision. This is called “buyer’s remorse” and the majority of buyers will go through this process.
This is where your agent really needs to earn their commission. A good agent understands that a buyer might have second thoughts and should proactively work to provide the information and assurance needed to settle the nerves. The positive news is that research shows that “buyer’s remorse” while common, is a temporary state of mind for buyers and seldom lasts for more that about one week. But in this week, it is important that your agent is in frequent communication with the buyer to answer any questions and address any lingering doubts they might have.
The buyer is unable to arrange the right level of financing/mortgage.
An inability to finance a purchase is one of the main reasons why transactions fall apart as some buyers have a tendency to overestimate how much they can borrow. With the current events surrounding the Coronavirus, furloughing, reduced wages and increased unemployment, a buyer’s ability to finance the transaction should be carefully considered.
To reduce this borrowing risk, your agent should check that any offer made to buy your home is a ‘well-qualified’ offer, meaning that a mortgage has already been 'agreed in principle'. It is also a good idea to further check that the buyer has appropriate funds for a deposit. If a buyer is a ‘cash purchaser’ then this should be evidenced.
Valuing your buyers’ home
Closely linked to the above is the situation where an offer to buy your home is contingent on the sale of another property. Again, it is certainly not unheard of for a buyer to overestimate how much their current home will sell for. If your buyer is unable to sell for the amount they expect, then any shortfall might need to be financed and point 2 above comes back into play.
If an offer to buy your home is contingent on the sale of another property, then your agent should check the status of that sale and, where the buyer’s property is still on the market, assess whether the asking price is realistic.
Your property does not value at the right level
Before a mortgage company will lend, it will undertake a valuation to ensure that the property represents sufficient collateral for the loan. In some instances, lenders can value a property lower than the agreed sales price and hence might not be willing to lend the full amount.
This is especially common in a market where house prices are falling and at times of economic uncertainty. At these times, lenders are concerned about protecting their loan where the value of their security might fall. But surprisingly, banks and mortgage lenders can also ‘down value’ a property when house prices are increasing, especially where they are rapidly increasing. This is because the lender might rely on comparative data based on completed sales that have been registered. By the time these sales appear on land registry, they could easily be six months old and, where property values are increasing rapidly, might not reflect current market values.
In such instances, your agent should actively work with the lenders valuer to provide sufficient evidence in support of the sales price by providing comparisons of recent transactions.
You should also remember that some agents could over inflate the value of your home just to win the listing. While you might feel great when an agent values your home at 20% more than other agents, if your property fails to sell or is down valued by a mortgage lender, then you might have wasted a lot of time and money. When an agent values your property, they should always offer strong market evidence in support of their valuation.
Problems with the survey
A major issue identified on survey is another common reason for transactions to falter. Many buyers are put off by survey reports which present a list of ‘issues’ with the property and the associated costs for remediation. The fact is that very few properties have a ‘clean survey’, so it is really about managing the process.
When you put your property up for sale, you should advise the agent of anything you are aware of that might become a problem on survey. There is some ‘psychology’ involved here, as a buyer who learns about an issue from the seller or their agent is more likely to work through the problem than they would be if they find out about it via the survey report. Where issues are not disclosed by sellers and come up on survey, buyers can sometimes think, “they were trying to hide that from me, what else are they hiding?”.
The other important thing your agent should do is to ensure the buyer reads the survey report within the ‘context’ of what is being bought. If the house is 100 years old, then of course it is going to have a few more survey issues than a brand-new home. Also, if the issues are already reflected in the price, then the buyer should be reminded of this.
Where something genuinely comes up on a survey that was unexpected, then it really becomes a matter of negotiation. Either as a seller, you deal with the problem ahead of the sale, or you reflect the cost of dealing with the issue in the selling price.
The conveyancing process identifies a problem
In some instances, the conveyancing process can identify issues with a property such as a lack of planning permission for work done, or a breach of lease (see further details below on leaseholds).
As with the survey, the best way to deal with this is to get ahead of the problem. Make sure your agent is fully aware of any issue that might be identified during conveyancing. Based on the specific scenario, it might be possible to obtain retrospective planning permission or freeholder consent for works done or to offer an insurance policy to the buyer to alleviate their concerns. The earlier such matters are dealt with in the sales process, the less likely they are to delay the overall timescale to complete the transaction.
The chain falls apart
Sometimes, the sale of your property is part of a larger ‘chain’ of transactions that are all contingent on each other. It might be that another part of the chain ‘falls apart’ for any of the reasons discussed above. While this is largely outside of your control, there are some steps you can take to assess the risk of this happening.
Before accepting any offer to sell your property, you should always make sure that your agent fully explains who the buyer is, whether they have to sell a property to purchase yours and how long and complex the overall chain is. A good agent will do a little ‘due diligence’ on the entire chain to assess the probability of any future issues within the chain.
Selling a leasehold property is a little bit more involved and there are some further factors which could cause the transaction to fall apart. One of the main reasons is that the lease might contain provisions that they buyer is unhappy with, such as a shorter lease duration than they were aware of, a higher or escalating ground rent provision or a no pets clause.
As with all of the above, being prepared and disclosing potential issues early to a buyer is the best way to work through these challenges. Where there are issues or conditions with the lease that might limit the pool of potential buyers, then your agent should be very 'targeted' with their marketing. For instance, what is the point of a pet owner viewing your property if there is a ‘no pet policy’. Similarly, there is little point in someone offering to buy your leasehold if it has a 60-year lease and the buyer needs to arrange a mortgage (which would be very challenging). A good agent will understand the lease and manage inquiries, viewings and offers accordingly.
In summary, while the 30-40% fall through rate sounds daunting, with some early planning, appropriate disclosure and a good agent, there is little reason why your home sale should be part of this statistic.