This post originally appeared on The Basis Point: Why It’s Good That 60,000 Home Purchase Deals Cancelled Last Month
Almost 15% of U.S. home purchase deals fell through last month, per Redfin. That means about 60,000 cancelled home purchases in June, and this is a good thing.
Why? Because, while higher rates certainly caused some of June’s 60,000 cancelled home purchases, mostly it signals that buyers are gaining an upper hand over sellers.
When you’re buying a home — the biggest deal most people ever do — you have a certain number of days in your contract to inspect the home for anything you don’t like.
When the market is red hot like it’s been for a couple years, sellers won’t even accept your offer if you have too many days — or any days at all — to inspect the home.
So buyers have been waiving their inspection options (aka contingencies) just to get an accepted offer in recent years, which means that you typically have to go forward with a deal even if you find a problem or something you don’t like about the property during the contract (aka escrow) period.
If you do find a property issue, you don’t absolutely have to go forward. But if you’ve waived your contingencies and you walk away from a deal, the seller can keep your deposit, which is typically between 1% and 3% of the purchase price.
So this trend of more cancelled home purchases is a signal more buyers are having more say in how deals go. It’s a welcome change from a seller-dominated market of recent years.
Redfin derived this cancelled home purchases stat by analyzing national Multiple Listing Services (MLS) that all licensed Realtors must use to list and sell homes.
Realtors — and buyers or sellers — don’t have to explicitly say the reason for the cancelled home purchase.
There is a contract between buyer and seller, and as long as the buyer or seller cancelling the deal is doing so per the contract’s terms, it just shows in MLS as cancelled.
Example: if you’re a buyer whose home purchase contract with a seller gave you 7 days to inspect the home and you found a plumbing issue you don’t like on day 5 and cancelled the deal in writing (something your Realtor facilitates using a contract addendum), you don’t have to specify the plumbing issue.
Homebuyers have largely waived inspection, approval, financing, and other contingencies that protect them in the past couple years because a low- or no-contingency contract was the only way to get sellers’ attention.
But the cancelled home purchase trend is a signal that at least some negotiating power is shifting to buyers now.
Finally, a buyer’s market signal.
Here are the top 10 places where deals are cancelling the most, and the Redfin post has the full list.
Your local real estate agent will tell you how intense your local market is so you know how to write your contracts (aka home purchase offers).
And please comment or reach out directly with questions.