About six percent of pending home sales fall through before closing, according to the National Association of Realtors, with the rate drifting between five and seven percent depending on the market.1National Association of REALTORS®. REALTORS Confidence Index Put another way, roughly one in seventeen deals under contract never reaches the closing table. The reasons cluster into a short list: mortgage denials after pre-approval, appraisals that come in below the contract price, inspection findings the two sides can’t negotiate past, title defects, and contingent sales that depend on another house selling first.
What Moves the Failure Rate Up or Down
The five-to-seven percent band isn’t fixed. In a tight seller’s market, fewer deals collapse because buyers have more at stake and less leverage to walk. When conditions shift toward buyers, cancellations creep up. Rising interest rates push the rate toward the higher end as well, since borrowers who qualified at one rate may not qualify after an increase during the contract period.1National Association of REALTORS®. REALTORS Confidence Index
Time matters too. Financed deals typically sit in pending status for 30 to 60 days; cash deals can wrap up in a week. The longer the pending window, the more chances something has to go wrong.
Mortgage Denials After Pre-Approval
Financing failures are the single most common cause, and they catch buyers off guard because a pre-approval letter feels like a guarantee. It isn’t. Underwriting happens after you’re under contract, and the lender takes a fresh look at your credit, bank statements, employment, and the property itself.
Debt-to-income ratios are a frequent breaking point. Fannie Mae generally caps DTI at 45 percent for manually underwritten loans, with automated approvals possible up to 50 percent when the borrower has strong compensating factors like a high credit score or large reserves.2Fannie Mae. Debt-to-Income Ratios Any new debt taken on between pre-approval and closing — a car loan, a new credit card, financed furniture — can push a borrower past the limit and sink the loan.
Employment changes are another tripwire. FHA lenders must reverify employment within 10 days of the loan’s note date.3U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Conventional lenders run similar last-minute checks. A job switch, a cut in hours, or a move from salary to commission during the contract period can trigger a denial even when nothing else has changed.
When the Rate Lock Expires
Mortgage rate locks typically run 15 to 60 days. If closing slips past the lock, the buyer either pays to extend it or takes whatever rate is available. In a rising market, that new rate can push the monthly payment high enough to blow up the qualification math. Some buyers lose their financing not because anything changed on their end, but simply because the deal took too long.
When the Appraisal Comes in Low
Lenders won’t loan more than a home is worth, and the appraisal sets that number. If the appraised value lands below the contract price, the gap has to be filled by someone. A home under contract for $350,000 that appraises at $330,000 leaves $20,000 the bank won’t finance.
The buyer can bring cash to cover the shortfall, the seller can lower the price, or the two can split the difference. If neither side moves and the contract has an appraisal contingency, the buyer walks and keeps the earnest money. This happens most often in fast markets where bidding wars push offers above what comparable sales support.
A low appraisal isn’t always final. Federal interagency guidance recognizes a formal Reconsideration of Value process, in which the lender asks the appraiser to review new information, such as comparable sales that were missed or errors in the property’s reported details.4Federal Register. Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations VA loans have their own structured version of the process.5VA.gov. Reconsideration of Value Request Requirements The request runs through the agent or loan officer, not the buyer directly.
Inspection Negotiations That Fall Apart
Inspections routinely surface problems that weren’t visible during a showing: foundation cracks, aging roofs, failing HVAC, water damage behind walls, outdated wiring. The report doesn’t kill the deal. The negotiation that follows does.
Most contracts give the buyer a window, usually five to ten business days after acceptance, to inspect the home and respond. In competitive markets that can shrink to three days. The buyer can ask for repairs, request a price cut or credit, or accept the home as-is. If the seller refuses to budge on a serious defect and the buyer can’t absorb the cost, the inspection contingency lets the buyer cancel and recover the deposit.
Small repairs almost never end a deal. A $500 plumbing fix gets resolved. A $15,000 foundation problem regularly doesn’t.
Title Defects and Boundary Problems
A title search confirms the seller has clear legal authority to transfer the property. It can also surface tax liens, old court judgments, unpaid contractor claims, or interests held by unknown heirs. Any of these can stop a title insurer from issuing a policy, and nearly every mortgage lender requires title insurance to close.
Surveys add another layer. If a fence, driveway, or part of the house encroaches onto a neighbor’s land, the title insurer may list the issue as a specific policy exception, leaving the buyer without coverage if a dispute arises, or refuse to insure the property at all until the encroachment is cleared. When the seller can’t resolve the defect before the closing deadline, the deal stalls or dies.
Contingent Sales and Chain Reactions
Some buyers make their purchase contingent on selling their current home first. That dependency can collapse the whole deal if the existing home doesn’t sell in time.
Sellers often protect themselves with a kick-out clause, which keeps the property on the market after a contingent offer is accepted. If a stronger offer arrives, the original buyer typically gets 72 hours to drop the contingency and commit, or walk away. Useful for the seller, but it means the buyer’s deal can evaporate quickly.
The bigger risk sits in chains, where Buyer A needs to sell to Buyer B, who needs to sell to Buyer C. One broken link takes down every deal below it. This shows up often in mid-priced markets full of move-up buyers who need the proceeds from their starter home.
What Happens to the Earnest Money
Earnest money deposits typically run one to three percent of the purchase price, and five percent or more in some high-demand markets. When a deal falls apart, who keeps the money depends almost entirely on the contingencies.
If the buyer cancels within a valid contingency — failed inspection, denied financing, low appraisal — the deposit goes back to the buyer. If the buyer walks for a reason not covered by any contingency, the seller usually has a claim to keep it.
Release is rarely automatic. Both agents generally have to sign off, and if either side disputes whether the cancellation was valid, the escrow holder will hold the funds until the parties agree or a court orders a release. State rules differ, so a standoff is a reason to call a real estate attorney in your jurisdiction.
The Cost of Waiving Contingencies
In competitive markets, buyers sometimes waive the inspection, appraisal, or financing contingency to make their offer stronger. It helps win bidding wars and strips away the safety net at the same time. If financing fails after the financing contingency is waived, the buyer can lose the deposit entirely and face additional exposure for the seller’s damages.
Legal Fallout When a Buyer Walks
When a buyer backs out without a valid contingency, the seller’s options go beyond keeping the deposit. Many residential contracts include a liquidated damages clause that caps the seller’s recovery at the earnest money amount. For such clauses to hold up, courts generally require the figure to be a reasonable estimate of likely losses rather than a penalty.
Without a liquidated damages clause, the seller can sue for actual damages: the difference between the original contract price and the eventual sale price, plus carrying costs during the delay. Specific performance, a court order forcing the buyer to close, is possible in theory but rarely practical for sellers to pursue.
Both sides also eat sunk costs no matter who caused the collapse. Escrow cancellation fees, appraisal fees, inspection fees, and attorney time don’t come back.
How to Reduce the Odds
Nothing eliminates the risk, but a few habits help. If you’re buying, get fully underwritten before you make an offer rather than relying on a basic pre-approval. Don’t change jobs, take on new debt, or make large unexplained deposits during the contract period. Lock your rate for at least 45 days if there’s any chance of a delay.
If you’re selling, look hard at the buyer’s financing before accepting an offer. A larger earnest money deposit signals a more committed buyer. Add a kick-out clause to any contingent offer. Run a preliminary title search before listing so you can clear up liens or encumbrances on your own schedule.
Most failed deals don’t blow up over one dramatic event. They fail because a small problem went unaddressed long enough to become a large one.