What to Know About Fall Through Rates
While most home sales proceed smoothly to closing, some contracts fall through due to a variety of contingencies. Recently, in the Bright MLS service area, the number of contracts falling through has seen an increase, particularly in September. This rise in fall-through rates highlights the importance of being prepared for potential disruptions during a home sale transaction.
Both buyers and sellers must understand the reasons contracts fall apart and how they can safeguard themselves as the market intensifies in the closing months of 2024. Here, we’ll explore the most common causes of contract failures and provide actionable steps to mitigate the risk of a deal collapsing.
In Arlington, the contract fall through rate is between 10-14%, which is low compared to other areas in the Bright MLS footprint which covers Northern Virginia, Maryland, DC, and parts of Delaware and Pennsylvania.
Why Fall-Through Rates Are Rising in 2024
The fall-through rate — the percentage of home sales that do not reach closing — has been on the rise, particularly in the Bright MLS service area. September 2024 saw an uptick in contracts falling through, and this trend may continue as the market heats up in the final months of the year.
How do Fall-Through Rates Vary by Price Range
Homes priced at lower levels are consistently more vulnerable to contracts falling through than higher-priced properties. One of the key reasons for this is that buyers in the lower price range are often more financially stretched, leaving little room for error if something unexpected arises, such as a financing issue or inspection problem. In fact, data from September indicates that nearly 20% of homes listed at under $300,000 had a contract fall apart before closing. These buyers are often more reliant on securing favorable mortgage terms, and even slight changes in interest rates or loan approval criteria can derail the transaction.
By comparison, homes in higher price brackets tend to see fewer contracts fall through, with fall-through rates hovering below 15% for properties across all other price points. Buyers at these levels often have more financial security, including larger down payments or more flexible financing options, which makes it easier to resolve issues that might otherwise kill a deal. Although no price range is immune to a transaction falling apart, the gap between lower and higher-priced homes shows a stark difference in buyer stability and the challenges they face in completing the sale.
Several factors contribute to the increased fall-through rates:
Market Volatility: A Key Contributor to Rising Fall-Through Rates
As the real estate market grows more competitive toward the end of the year, market volatility becomes a major factor contributing to higher fall-through rates. When the market is active, buyers often feel pressured to make swift decisions. Many prospective homebuyers, driven by the fear of missing out, enter into contracts without thoroughly considering their long-term financial position. This rushed decision-making can lead to financing problems later in the process, as buyers realize they are unable to secure the necessary funding to complete the purchase.
For sellers, the increasingly competitive environment means that they may receive multiple offers on their properties. While this might seem like a favorable scenario, it can lead to deals falling through if buyers overextend themselves and fail to meet their financial obligations. Sellers are then left with a property back on the market, often with diminished buyer interest due to the previous contract’s collapse.
Fluctuating Interest Rates and Their Impact on Buyer Financing
Another significant factor influencing the rise in fall-through rates is the unpredictability of interest rates in 2024. Even minor changes in interest rates can make or break a buyer’s ability to qualify for a mortgage, particularly for those who are already on the edge of affordability. As interest rates fluctuate, buyers who locked in a pre-approval at a lower rate might suddenly find themselves priced out of a loan when the rates increase.
The economic climate of 2024 has been marked by inconsistent interest rate shifts, making it harder for buyers to confidently plan their financing. This uncertainty leads many deals to collapse when buyers are no longer able to afford their mortgage payments under the new rates. As a result, sellers face the frustration of a fall-through, often with no immediate solution.
Inspection Issues: A Dealbreaker for Many Buyers
One of the most common reasons for contracts falling apart is the outcome of home inspections. In 2024’s fast-paced real estate market, sellers are frequently unwilling to make repairs or address issues that arise during the inspection process. With demand for homes remaining high, many sellers feel they have the upper hand and can refuse to negotiate on repairs or concessions.
On the other hand, buyers, especially those stretching their budget to afford the home, may be unwilling or unable to take on the financial burden of repairing defects discovered during the inspection. The result? Contracts collapse as neither party can agree on how to move forward with necessary repairs.
Additionally, as the market speeds up, buyers may rush through inspections or skip them altogether in an attempt to close the deal quickly. This approach often backfires when significant issues arise after the fact, prompting buyers to back out of the deal and causing the transaction to fall through.
Looking Ahead: Will Fall-Through Rates Continue to Rise?
As we move toward the end of 2024, it’s likely that fall-through rates will continue to climb, particularly if market volatility persists and interest rates remain unpredictable. Both buyers and sellers need to remain vigilant, patient, and flexible in their approach to navigating this market.
By understanding the factors at play and taking proactive steps to address potential issues before they derail a deal, buyers and sellers can greatly reduce the likelihood of experiencing a fall-through. Working with experienced real estate agents and maintaining open communication throughout the process is key to ensuring that transactions go as smoothly as possible.
In a shifting market, preparation and flexibility can make all the difference in closing a successful deal.
