How To Handle A Buyer Pulling Out Before Exchange
After going through the emotional roller coaster of preparing your house for sale, putting it on the market, instructing solicitors or conveyancers, arranging valuations and inspections and doing everything from putting on a fresh coat of paint to boosting kerb appeal… you can finally see the finish line. A prospective buyer makes an offer, you accept, and everything appears in order. All you need to do is exchange contracts.
But then something happens. Or rather, nothing happens. That is, the buyer pulled out just before the exchange. It may sound dramatic, but for hopeful house sellers, this can be heartbreaking. It is certainly endlessly frustrating. Unfortunately, it is also not that uncommon. In fact, as many as 25 – 30 per cent of all house sales fall through before they get to completion.
Why does this tend to happen, and with such great frequency? And how do you handle it if your buyer pulls out before the exchange?
Why Do Buyers Pull Out Just Before Exchange?
There may be any number of factors at play when a buyer decides not to continue through with the exchange of contracts and completion of the sale. For example:
They may not be able to get a mortgage
But wait, you may say. They came to the process with a mortgage agreement in principle. How could it be that they were unable to get a mortgage? A mortgage agreement in principle, which may also be referred to as mortgage pre-approval, is a document stating that the person is preliminarily approved for a mortgage for an approximate amount. It is not an iron-clad guarantee that they will, in fact, be approved for that amount – or at all. Nor is it a guarantee that the lender will agree to the loan if the house is not valued at an appropriate level. Let’s explain.
A few factors can impact the process of going from a mortgage agreement in principle to an actual mortgage. For example, if the applicant’s financial status has changed (e.g. they have lost a job, they have incurred a great deal of debt from the date of application to current, etc.), then the lender may feel as if they are a bad risk and refuse to approve them for the mortgage.
Another scenario that may play out comes down to the valuation and inspections of the property. Let’s say that you asked for £300,000 and received an offer of £275,000. You decide this will work for you and accept the offer. From there, valuations experts and inspectors are instructed. If their reports indicate that the property is really not worth the price you agreed on, then the lender will not mortgage that property. While it may not seem fair to you, or to the buyer, it is well within the lender’s rights.
They Are Not Satisfied with Survey Results
Lenders require a property survey before finalising a mortgage agreement. They need to know if there are any issues that could affect a property’s value. (As well, it is vital for buyers to insist upon inspections as well to ensure their own peace of mind. Buyer beware and all that.) That said, it can be frustrating on the seller’s side.
There are some problems that a survey could reveal that may persuade a buyer (and/or their lender) to pull out. These include:
- Problems with the roof
- Structural shifting and movement
- Damp in the property
- Lack of relevant building regulations or planning permission for changes to the property
- Issues with the electrical system and safety
These can impact the safety and soundness of a property – and, of course, its value.
In some cases, a survey may uncover some issues that may be of concern. Rather than pulling out, the prospective buyer may try to negotiate the price or ask that certain items be addressed before they are comfortable proceeding. If this process goes nowhere, they may walk away from the sale before the exchange.
Obstacles In the Property Chain
The property chain can be one of the most frustrating aspects of buying and selling a home, and it could be one reason a buyer pulls out before an exchange in the UK. As with any chain, the success of one transaction is dependent upon the success of the previous transaction, and it is necessary for the success of the next in line. The more links there are, the more complex the process – and the higher your chance that there will be a break in the chain. If your buyer, for example, cannot sell their home, then it may mean that they do not have the funding necessary to buy yours. They may be forced to pull out.
They’ve Changed Their Mind
Sometimes it really is this simple. Maybe they’ve got cold feet. Maybe they decided the house was not for them. Maybe they determined it was too far to commute to work. There could be a million “maybes,” but it leaves you without a buyer despite having invested weeks and perhaps months in the process.
Why Buyers Do Not Pull Out as Frequently In Scotland
In the UK (excepting Scotland), about 11 per cent of house sale transactions fall through after the results of surveys are issued. This happens far less frequently in Scotland, so we are going to explain why. There are some key variations in the process. For example, house sellers must have a home report done at their own expense before they put their home on the market. This means that they target serious buyers only who are committed and aware of issues around the property. They are well-informed from the very start and make an offer based on the results of the survey.
What Happens If Buyer Pulls Out Before Exchange?
If your buyer does pull out, a seller would at least hope they do so after the exchange! In this case, they have exchanged contracts and have made a “commitment,” as it were, to buy the house. If they change their mind for whatever reason, there are financial and legal ramifications. For example, they lose their deposit and they may be responsible for paying other costs you have incurred as the seller. This is by no means optimal for you as you must locate another buyer and go through the process again, but at least you can recoup a little of the money you have put forth during this stage of the game.
What happens if the buyer pulled out before the exchange? To put it succinctly, if a little bluntly, nothing much on their end. At this point, they have no legal or financial obligation to go through to completion and purchase the house. You have not exchanged contracts, and they have not – officially – agreed to anything.
Note: Of course, you have not agreed to anything before the exchange either. This can work to protect you from entering into a situation that will ultimately fail to deliver the results you need and want.
What to Do When a Deal Falls Apart
When a buyer fails to go through to exchange and completion, it can feel like a blow to the gut. You have spent time and money preparing, staging, and arranging professional services (e.g. estate agents) and you have nothing to show for it at this point.
If you find yourself in this situation, you should contact your estate agent and/or solicitor/conveyancer to enquire why the buyer has changed their mind. The buyer and their representative do not have a legal obligation to tell you, but they typically will provide an explanation.
At this point, all might not be lost. For example, if the buyer has chosen to pull out because there was an issue with the survey, they may be open to the possibility of going through with the exchange and sale if you carry out the necessary work in a specified timeline and/or negotiate a new price. Again, because their lender may be playing a role here, you would have to ensure that they would be willing to re-evaluate upon a new inspection.
It is a different scenario when the buyer is well and truly done when their “No” is firm and final. What can you do then?
Find a Buyer As Soon as You Can
Your next move is to find another buyer, and understandably, you want to do this sooner rather than later. According to recent statistics, 51 per cent of sellers lose an average of £2700 when a buyer pulls out before exchange, while 12 per cent lose £5000. You also need to calculate the cost of lost and wasted time, which can be immeasurable.
Ideally, you would have another buyer waiting in the wings. But realistically, you may have to consider taking a different route. For example, if you target cash buyers, you do not have to worry about them pulling out due to not being able to secure a mortgage. Whether you opt to put your house up for auction or try to win over a property investor, this may be an avenue worth pursuing especially if the issue at hand is one having to do with the condition of the house and property.
One viable option is to work with a cash house-buying company. To initiate the process, you simply fill in a quick online form. Within 24 hours, the cash buyer will return an offer in principle. If this is agreeable to you, you can choose to continue. If not, don’t! It’s up to you, and you are under no obligation.
If you move on, the buyer will instruct valuation experts to inspect the property. Upon receiving their reports, they will issue a formal offer. This may be the same as the initial offer or it may be different. For example, if the survey uncovered significant problems with the roof or unsafe electrical systems, they may reduce it down to reflect that. In only very rare cases are offers rescinded.
If you should accept the formal offer, the buyer instructs RICS surveys, solicitors and other professionals to move towards exchange and completion. You do not have to pay for any of this out of pocket. All you have to do at this point is pack up and arrange removals.
Within a short time period (as little as 7 days), you can complete a sale and receive the proceeds of the sale directly in your bank account. Cash house buyers typically pay between 80 and 85 per cent of total market value, but consider that you do not have to pay for estate agents, solicitors, staging, repairs, improvements, etc. This is often well worth it in terms of completing a fast sale and moving on towards the next steps in your life.
What Can You Do To Reduce the Risk Buyers Pull Out
Let’s back up. If you are in the earlier stages of selling your home, there are some steps you can take to reduce your risk of a failed transaction. Sellers whose buyers pulled out just before the exchange may well wish they had taken these steps beforehand.
Vet Buyers Before Accepting Offers
When you receive an offer, your estate agent should provide a concise summary of the buyer’s situation. For example, are they first-time buyers? Are they in a property chain? Are they motivated to move or in a hurry to move due to work, school, family, divorce, etc.?
If you have the luxury of multiple offers, this will help you zero in on the best choice. But it also gives you a glimpse into issues that could become problems (e.g. they are part of a long property chain).
Minimise the Links in the Chain
As mentioned, the more links in the property chain, the greater the chance that it breaks down at some point. If you have the option between a chain-free buyer and one on the chain… well, it may be worth taking a slightly lower price to avoid the hassle and uncertainty.
Be Ready to Renegotiate
If the issue that prompts a buyer to pull out involves your survey results, be prepared to negotiate. As discussed, you may consider offering to remedy the issues and/or accept a reduced price in order to keep the sale on track. This doesn’t always work, but it may in your case.
Keep a Cash House Buyer In Mind
Always have a plan B. In this case, if your sale falls through, opting to work with a cash house buyer may be your best option.