Thursday, October 13, 2022 / by Amy Brown
Properties returning to market: Red flag or missed opportunity?
As real estate brokers, we are seeing a greater than normal increase in homes returning to market after being under contract. In previous years, the average national statistic was that 3.9% of homes would return to market at some point. Currently that statistic has risen to 16.1%. Unfortunately, a home that is classified as "back on market" is stigmatized as being damaged in some way but that is not always the case. There are many reasons that a home may return to market and not all of them are bad. For that reason, it may be worth looking at these homes to take advantage of the popular stigma and receive a killer deal!
Top reasons that homes return to market:
1. Inspection findings - this could be anything from a roof that is at the end of its life to a failing foundation. Many buyers will tend to walk away rather than re-negotiate the price. In a market with very low inventory, this is a mistake. It is always better to stay with the deal, save your due diligence deposit, and negotiate down the price of the house or have the seller cover repairs. It may be a bit of a hassle at first but you could come out with the home of your dreams in the end. A savvy seller, will also tend to negotiate rather than go through the under contract process a second time.
The upside: If this house does come back on the market, any defects are now a material fact and must be disclosed. As a homebuyer you now have the opportunity to walk in with eyes wide open. In many cases, the seller will offer a buyer a copy of the previous home inspection, saving you money, and identify areas that they have repaired. Also, you are now walking into a better home than what was on the market originally...move forward.
The downside: You could have a seller that believes the previous buyer was unreasonable in their requests and does not feel a sense of urgency for the sales process. If no repairs have been made and/or the seller is not offering a price reduction or cash credit, you now have a seller that is not truly motivated to sell...walk away
2. The buyers financing fell through - in these days of rising interest rates, this is not uncommon. What a buyer could qualify for last month, may not be what they can qualify for today. If they have not received the best advisement, maybe they did not lock in their interest rate. Now, the home that they had under contract is outside of their budget. This home comes back on the market at no fault of the seller. This usually results in a seller that is more likely to negotiate for a contract with more solid terms...move forward.
3. Home did not appraise - Most reasonable sellers will be willing to reduce the contract price down to the appraisal value if a home does not appraise. However, in reality, selling a home is less about the money and more about emotional attachment. There is a phenomenon called the "endowment effect" which shows that anyone selling something that they have owned for a period of time considers their item worth more than someone else's item of a similar type. The seller recalls happy memories of events and becomes nostalgic. If you see this home come back on the market and it returns at the same price, it is overvalued and not a good investment...walk away. But if this home now returns with a price reduction...move forward.
4. Buyers got cold feet or circumstances changed - that's life! The best laid plans can sometimes fall apart and we never know what life will throw at us. Maybe the buyers had a relative that they now plan to care for, a pregnancy and they need a 4 bedroom rather than 3, they went in to give notice at their job and the boss offered them a big incentive to stay...you never know! This is an easy choice...move forward.
5. There is a defect on the title - this is a toughie. In NC, you are required to close with a real estate attorney, not a title company, no matter what type of real estate transaction it is. This has saved myself and my clients many times over. A defect on the title could be anything from an encroachment by the neighboring house to an old lien claim from 20 years ago. Regardless of the issue, you will want to have the title clean of any encumbrances before moving forward with the purchase. This is a seller expense and if they are unwilling to clear the claim or unable to, you will definitely want to...walk away.
I hope that you found this helpful! Let's have a wonderful day and find a beautiful home!
Top reasons that homes return to market:
1. Inspection findings - this could be anything from a roof that is at the end of its life to a failing foundation. Many buyers will tend to walk away rather than re-negotiate the price. In a market with very low inventory, this is a mistake. It is always better to stay with the deal, save your due diligence deposit, and negotiate down the price of the house or have the seller cover repairs. It may be a bit of a hassle at first but you could come out with the home of your dreams in the end. A savvy seller, will also tend to negotiate rather than go through the under contract process a second time.
The upside: If this house does come back on the market, any defects are now a material fact and must be disclosed. As a homebuyer you now have the opportunity to walk in with eyes wide open. In many cases, the seller will offer a buyer a copy of the previous home inspection, saving you money, and identify areas that they have repaired. Also, you are now walking into a better home than what was on the market originally...move forward.
The downside: You could have a seller that believes the previous buyer was unreasonable in their requests and does not feel a sense of urgency for the sales process. If no repairs have been made and/or the seller is not offering a price reduction or cash credit, you now have a seller that is not truly motivated to sell...walk away
2. The buyers financing fell through - in these days of rising interest rates, this is not uncommon. What a buyer could qualify for last month, may not be what they can qualify for today. If they have not received the best advisement, maybe they did not lock in their interest rate. Now, the home that they had under contract is outside of their budget. This home comes back on the market at no fault of the seller. This usually results in a seller that is more likely to negotiate for a contract with more solid terms...move forward.
3. Home did not appraise - Most reasonable sellers will be willing to reduce the contract price down to the appraisal value if a home does not appraise. However, in reality, selling a home is less about the money and more about emotional attachment. There is a phenomenon called the "endowment effect" which shows that anyone selling something that they have owned for a period of time considers their item worth more than someone else's item of a similar type. The seller recalls happy memories of events and becomes nostalgic. If you see this home come back on the market and it returns at the same price, it is overvalued and not a good investment...walk away. But if this home now returns with a price reduction...move forward.
4. Buyers got cold feet or circumstances changed - that's life! The best laid plans can sometimes fall apart and we never know what life will throw at us. Maybe the buyers had a relative that they now plan to care for, a pregnancy and they need a 4 bedroom rather than 3, they went in to give notice at their job and the boss offered them a big incentive to stay...you never know! This is an easy choice...move forward.
5. There is a defect on the title - this is a toughie. In NC, you are required to close with a real estate attorney, not a title company, no matter what type of real estate transaction it is. This has saved myself and my clients many times over. A defect on the title could be anything from an encroachment by the neighboring house to an old lien claim from 20 years ago. Regardless of the issue, you will want to have the title clean of any encumbrances before moving forward with the purchase. This is a seller expense and if they are unwilling to clear the claim or unable to, you will definitely want to...walk away.
I hope that you found this helpful! Let's have a wonderful day and find a beautiful home!
