More home sales fall through as buyers gain leverage

With the market favoring buyers, more home sales are falling through as minor disagreements can lead to deals being called off.

Nearly 60,000 home-purchase agreements were canceled in August, according to a new report from Redfin, a subsidiary of Rocket Cos. That's 15.1% of homes that went under contract, up from 14.3% a year earlier and the highest August rate in records dating back to 2017.

There were roughly 500,000 more sellers than buyers in the market in August, and paired with high prices, high mortgage rates and economic uncertainty, buyers became selective. They asked sellers for repairs, price reductions and other concessions, but some buyers backed out of deals for other reasons.

"One of my buyers almost canceled a contract because she accidentally flushed her engagement ring down the toilet during the home inspection," said Manny Bermudez, a Redfin real estate agent in Phoenix, in a press release Tuesday. "The seller came home and both parties searched for the ring for two hours. The buyers never found it and took their bad luck as a sign to back out of the deal."

Many sellers did not give in to buyers' requests and failed to accept that it is no longer a lucrative market like in 2021, when homes received dozens of offers above the asking price, the report said. Some sellers who bought their homes during the pandemic were also unwilling to negotiate below a certain price to avoid taking a loss.

Deals can often fall apart during the inspection period, during which buyers may cancel the deal if the seller didn't agree to repair requests, a better home was listed or if they experienced buyer's remorse. This was a stark difference from a few years ago, when buyers waived every contingency for a chance at winning the bidding war, the report said.

"I had a listing where the buyers requested nearly $15,000 in pool repairs," said Kevin Alford, a Redfin real estate agent in Oklahoma City. "My sellers went above and beyond, completing the work, paying out of pocket to make sure everything was perfect. But even after the pool was repaired, the buyers failed to close on the scheduled date without notice. The deal ultimately fell through, and it was heartbreaking for the sellers."

Redfin surveyed 443 real estate agents last month, 70.4% of which said home inspection or repair issues caused deals to fall through. Buyer financing (27.8%), a buyer's inability to sell their current home (21%), a change in the buyer's financial situation (14.9%), a buyer finding a different home they liked (12.9%) and concerns about the economic climate (12.2%) were the next most common responses.

Many agents also reported issues with condos, as high HOA dues and special assessments can scare off buyers. Deals can also fall through if a condo buyer isn't aware that not all condo buildings are approved for Federal Housing Administration loans.

While it is typically more challenging for sellers to back out of deals, 11.5% of Redfin agents who dealt with a contract cancellation in the past three months said a seller caused it.

Regionally, Florida has been building more homes than any other state besides Texas. As a result, Jacksonville (20.5%), Orlando (20.2%) and Tampa (19.4%) all experienced a high share of cancellations, with Atlanta (21%) being the only city in the top 50 most populated with a higher percentage, according to the report.

"I worked with one seller who received 78 repair requests from a buyer following the inspection, and that was after the seller had already agreed to lower their $375,000 asking price by $25,000 because the house needed some improvements," said Dawn Liedtke, a Redfin real estate agent in Tampa. "The buyer came back and said they would handle the cost of the repairs, but only if the seller was willing to lower the price by another $100,000. The deal didn't work out."