When A Deal Doesn't Close

Question

Recently, when analyzing properties, I have seen multiple scenarios of deals for the properties I've been analyzing falling out. I am still a novice in the space, so forgive me if this question is asinine. I was wondering, when a deal previously did not close, is that a bad sign for the property in question? Are there too many variables involved in a failed closing to constitute that factor in my analysis as a bad sign? Should I submit an offer anyways and find out for myself whether that be through the appraiser or an inspection?

Any and all insight is appreciated and valuable.

Henry Clark · Answer

My background is as a CPA at a super large firm. Swimming with the sharks. Your question takes me back to learning my craft.

About year 2 to 3 your Light Bulb should turn on. In baseball the ball slows down. In soccer you see the play ahead of time. In basketball you pass without looking.
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You want to get to that spot as fast as possible in your new career. Here is how you do it. You just joined BP. Look at your posts. Is there a pattern to them? Did you miss the important questions or fail to prioritize?
Remember my background is as an accountant so every answer has a spreadsheet.

Start a spreadsheet. Make broad categories of REI topics. Under them put sun topics. Just like an outline for paper you wrote.
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This outline will help guide your learning, prioritize it, help you keep track of what you haven’t learned and make your career smaller. Component by component. Otherwise you drown.

Why did a deal not go through.  There are a million reasons.  You actually don’t want to hear them because you have no way to categorize them.   That’s what the outline is for.   Due diligence, subject to zoning, non permitted ADU, financing, inspection, low appraisal, etc.

As you’re doing the above you want to pick two areas to specialize in. You’re in Michigan. Let’s say you’re the Lake Property guy. Or you’re the 1031 guy. Or the Section 8 guru. Commercial, flipper, MF out of state contact, etc. If you do everything you will be bad at all of them.

Relate this approach back to what you already do great.   Fishing, computer games, baseball, mowing lawns.  It’s the same pattern just a different focus.  Pick a REI product that you enjoy.

JD Martin · Answer

No way to know for sure short of your agent doing some detective work and just calling the listing agent. Agents (good ones anyway) generally don't divulge that information but some will especially if it's a material issue with the home that now has to be divulged.

Beyond that, you can sometimes take your cues from the listing itself if you've been following it and know when it went contingent/pending. Houses that fall out in less than 10 days are usually due to something discovered in an inspection that the seller/buyer can't agree on. More than several weeks is usually a financing issue. Agents will be more likely to divulge this since they want other agents to know there's nothing wrong with the house. Houses that fall out after 30/60 days or similar usually means something material has happened to the house since the contract was signed or something was discovered in the title search - unpaid taxes, HOA liens, mechanic liens, undeclared easements, etc.

The caveat to all of that is that you have to know when it went under contract. A lot of agents & brokers are lousy at updating the MLS so you might see something go contingent/pending that was actually under contract 2 weeks ago, then you see it fall out after a week and think it's something on an inspection but really the buyer couldn't get financed because it's been 3 weeks.

Michael Smythe · Answer

Often the property may have issues that affects the value and the seller won't negotiate.

Patricia Steiner · Answer

I like to do 'the count' to give an indication of why the closing may not have taken place.  If it comes BOM (back on market) within 5 days, chances are the buyer did not place escrow.  That's not on the property but on the buyer.  At 10-15 days, that's the inspection period.  Chances are it didn't pass inspection and whatever caused it not to do so, the seller refused to correct.  That taints a property.  At about 20 days, that could indicate that the property didn't appraise and the seller wouldn't lower the price.  And, at 25 and on, that's the financing commitment time so if it fails then, you know the buyer couldn't obtain financing.  This information is helpful in how you approach the seller and in structuring an offer.  Hope this helps.

Justin Hammerle · Answer

@James Valice - there are many variables of why a deal may fall through that could really just be circumstantial.  Sometimes deals arise for the very reason of other buyers being turned off by the past history; if you analyze a property on paper and the numbers work, continue your DD until you know for sure its not worth your time.

James Valice · Answer

Eliott,

I appreciate the concise answer. I will definitely utilize this information when offering on a property that previously did not close.

James Valice · Answer

Alecia,

Wow! Thank you for sharing your real-life experience towards the questions being asked. There are a lot of takeaways from your post that will be useful towards furthering my knowledge. The biggest takeaway I got is that although not always, sometimes, a deal falling through is actually an opportunity waiting to be realized! Of course, I will do my diligence when offering on properties that had prior failed closings. Also, like you said, I will not use a failed closing as my main strategy but rather another tool in a diversified strategic REI analysis.

Eliott Elias · Answer

There are literally thousands of reasons why a property would not close. If you call the realtor or seller and ask, they will most likely tell you.

James Valice · Answer

Henry,

I appreciate the analogies you provided, it made for a clear and simple approach to understanding the message you explained. I also appreciate the insight you provided towards really putting in the deep work to help further understand certain aspects/questions I have for myself within the REI business.

Thank you for sharing your insight, I took a lot away from your post and will get started working on my own spreadsheet right away!

David M. · Answer

@James Valice

Previously, it could have been because of an inspection issue.  For a listed property, a material issue would have to be disclosed.  Its still possible nowadays.

But, in this hot market (at least the east coast area), a bunch is

financing issues:  The rise in interest rates has made it difficult for people to get final approval for a loan.

Appraisal:  Properties are again really being bid up really high and their arent' appraising for that amount, and so still leading back to financing issues.  If the buyer was doing a gov't backed loan, that appraisal will stay in the system for I think 3 months, maybe 6 --- I forget.

or buyers' remorse:  The buyer got caught up in so wanting a home that they over bid.  They realized that it would be crazy to pay that much for that property.

When A Deal Doesn't Close

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