Why are so many conditional sales falling through in 2017?

We have noticed a marked increase in the number of sales that have “fallen through” this year and not firmed up, once conditionally sold.

A conditional sale is reached after an Agreement of Purchase and Sale has been agreed to and signed by both parties and typically calls for a conditional sales period during which the buyer satisfies their purchasing conditions such as inspection and financing. This period is generally 5 business days for most properties but may run to 10 business days or more if additional inspections are required or in the case of condominiums where buyers must wait for the property manager to produce up to date condo status documentation.

What metrics do we have on the issue?
Unfortunately, this data is not recorded, reported or available in any meaningful way by our real estate board or realtor system. On our realtor dashboard, we have a section of the screen that keeps us informed about the number of new listings, price changes, conditional sales, sales, listing cancellations and the telling “back on market” category.  (here is what a section of our realtor dashboard looks like and our only source of data)

 

New Listing (111)
Back On Market (18)
Price Decrease (48)
Price Increase (1)
Conditional Sale (100)
Sold (87)
Expired (21)
Leased (0)
Cancelled (34)
Rented (13)
Suspended (2)

Back on market listings are those that are returning to active status and are mostly made up of those that were previously conditionally sold and are now being returned to “active” sales status.

Historically, this “back on market” category runs about 5% of new listings in our experience over the last several years. This year however, that number is more like 8-10% or more which means that the number of sales falling through is approaching double what it had previously been.

What causes sales to fall through and why so many more this year?
Good old fashioned “buyer’s remorse”
Buyer’s remorse can always be a factor in sales falling through. One partner may have liked the property more than the other or perhaps the buyers are just not prepared enough or on the same page regarding key buying criteria.  When this happens, unfortunately, many other parties are affected and their plans sidelined.

Because of our stronger market this year, many buyers may feel rushed to put in an offer before they are really ready, as they fear “missing out” on the property if they don’t.

Seeing a property once for a 30 or 40 minute visit may not be enough to get a full grasp or comfort level, so we may be seeing some impulsive buying decisions as a result. We recommend at least two visits to a property for buyers but this market doesn’t necessarily allow time for that level of investigation and research..

This can be especially so for buyers shopping high demand areas and price points who may have lost out on other properties or multiple offers by not being “quick enough”.

Inspections:

Inspections are the number 1 cause of sales falling through, because hidden or pricier to fix than expected items in a home, once understood, often lead to a renegotiation of a selling price which means there is a chance for the deal to fall apart.

In our market favouring sellers, many sellers may believe that there are lots more buyers out there waiting to buy their property, so may not be motivated to adjust the agreed selling price or fix issues pointed out in inspections. This is very true for properties which sell fairly quickly after listing or those sold in multiple offers.

Buyers in these circumstances may be feeling they are paying a premium price for a property and therefore can have an expectation that certain things should be addressed by a seller, so there is good potential for a disconnect between buyer and seller.

Financing:

As mortgage qualifications have tightened (and now with rising rates) more buyers may be getting surprised when the time comes to get the final mortgage approval during the conditional sales period. If there are hiccups in mortgage approval, some buyers may have to walk away from a house they really love.

So why is this is this a worry in a strong market?

Sales that fall through waste a lot of time, energy and money. A seller’s property is effectively “off the market” during the buyer conditional period and they may lose other qualified buyers who buy something else in the interim.

The seller’s plans are totally “on hold” and they cannot go forward until the sale firms up, so it can be a stressful waiting period for all involved. Realtors meanwhile, get no extra compensation for having helped buyer or seller through a transaction that does not complete.

Stigma on conditionally sold property:

Like it or not, there is a bit of a stigma attached to a property which has been conditionally sold but then falls through. So much so, that the real estate board allows the record of that conditional sale to be expunged from the sales history record, so as not to prejudice future buyers and their realtors.

Most buyers and Realtors will be suspicious and assume there was some inspection issue that surfaced.

Can you imagine how many fall through in private sales?

If a large number of sales are running in to problems with professional realtors advising both buyer and seller, can you imagine what the factor might be in the private sale arena?

Bottom line:

This is an offshoot of what is essentially a very healthy market with strong demand and enthusiastic buyers possibly jumping too soon for fear of losing out on a new listing. It also tests realtors who must do their utmost to make sure their buyers are fully prepared to complete conditional sales and negotiate the inevitable rocky patch that may occur between conditional sale and firm.

Gord McCormick, Broker of Record
Dawn Davey, Broker
Oasis Realty Brokerage
oasisrealty@rogers.com
www.oasisrealtyottawa.com  blog.oasisrealtyottawa.com
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11th year in business as a full service lower commission brokerage

 

 

Published by

Gord McCormick

Brokerage owner for 10+ years, Senior Member of Ottawa real estate board and former VP sales.

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