Deal or no deal? Boston condo buyers cancelling contracts
Boston Condos for Sale and Apartments for Rent
Deal or no deal? Boston condo buyers cancelling contracts
When you sell a Boston condo for sale, the last thing you want is for the deal to fall apart right before closing. But according to the latest data from Redfin, that’s happening a bit more often lately. The good news is, it’s completely avoidable if you lean on a Boston condo for sale broker for insight into why that is and how to avoid it happening to you.
This June, 15% of pending home sales fell through. That means those Back Bay and Beacon Hill condo buyers backed out of their contracts. That’s not too much higher than the norm of roughly 12% from 2017-2019, but it’s still an increase. And it’s one you don’t want to have to deal with.
The key to avoiding this headache is knowing what’s causing the issues that lead to a buyer walking away. A recent survey from John Burns Research and Consulting (JBREC) and Keeping Current Matters (KCM) finds that agents reported the #1 reason deals are falling apart today is stemming from the home inspection (see graph below):
Here’s why. With high prices and mortgage rates stretching Beacon Hill buyers’ budgets, they don’t have a lot of room (or appetite) for unexpected repairs.
Not to mention, Back Bay buyers have more options to choose from now that there are more homes on the market. So, if the inspection turns up a major issue, they may opt to walk away. After all, there are plenty of other Boston luxury condos they could buy instead.
Or, if the seller isn’t willing to tackle repairs, a buyer may back out because they don’t want the expense (and the hassle) of dealing with those issues themselves.
The good news is, there’s a way you can get ahead of any unpleasant surprises as a seller, and that’s getting a pre-listing inspection. It’s not required, but the National Association of Realtors (NAR) explains why it’s helpful right now:
“To keep deals from unraveling . . . it allows a seller the opportunity to address any repairs before the For Sale sign even goes up. It also can help avoid surprises like a costly plumbing problem, a failing roof or an outdated electrical panel that could cause financially stretched buyers to bolt before closing.”
What’s a Condo Pre-Listing Inspection?
It’s exactly what it sounds like: a professional home inspection you schedule before your home hits the market. Here’s what it can do for you:
- Give you time to fix what matters. You’ll know what issues could come up in the buyer’s inspection. So, you’ll have time to take care of them before anyone even walks through the door.
- Avoid last-minute renegotiations. When buyers uncover unexpected issues after you’re under contract, it opens the door for concessions you may have to make like price drops or repairs, or worse, a canceled deal. A pre-listing inspection helps you stay ahead of those things before they become deal breakers.
- Show buyers you’re serious. When your home is clean, well-maintained, and already vetted, buyers see that. It builds trust and can help you sell faster with fewer back-and-forth negotiations.
The bottom line? A few hundred dollars upfront can save you thousands later.
Should Every Condo Seller Do This?
Not necessarily. Your real estate agent can help you decide what makes the most sense for your situation, your house, and your market. If you decide to move forward with a pre-listing inspection, your agent will guide you every step of the way. They’ll:
- Advise on whether to fix or disclose each issue
- Help you prioritize repairs based on what buyers in your area care about
- Make sure you understand your local disclosure laws
Boston Condos for Sale and the Bottom Line
If you want to avoid potential snags in your deal, a pre-listing inspection could be the way to go. Connect with an agent to go over whether a pre-listing inspection is the right move for your house and market.
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Deal or no deal? Boston condo buyers cancelling contracts
Rising mortgage rates and extra expenses are leading more homebuyers to cancel signed contracts, even if it means losing deposits put down for the deals.
Roughly 60,000 home purchase agreements were canceled in August, representing 15.7 percent of the homes that went into contract last month, according to a report from Redfin. The cancellation rate is the highest since October.
Those two months — October 2022 and August 2023 — have something in common: a peak in mortgage rates.
October is when rates tipped past 7 percent for the first time in 20 years. Since then, the average rate for a 30-year fixed-rate mortgage has hovered around that mark but often below it. Then, in August, the average rate was 7.07 percent and it peaked at 7.23 percent, a 22-year high.
Redfin Premier real estate agent Jaime Moore said buyers were getting “sticker shock” in the face of rising mortgage rates and expenses they may not have accounted for, such as maintenance, repairs and closing costs.
Moore added that sellers are sometimes satisfied in letting buyers cancel their contracts rather than concede to buyers’ repair requests. Buyers with a mortgage contingency in their deals can also get out of them without penalty if they cannot obtain a home purchase loan.
As a share of overall pending sales, those that fell apart increased by 50 basis points from 15.2 percent in July. A year ago, in August 2022, the share of canceled contracts was 14.3 percent.
Of the 50 most populous markets tracked by Redfin, the cancellation rate was highest last month in Jacksonville, where 26.6 percent of contracts were scuttled. San Francisco lived on the other end of the spectrum, sporting only a 6.4 percent cancellation rate.
Expensive home markets tend to have more cash sales, which are less affected by rising mortgage rates. But the Bay Area is certainly not immune to them.
Nationally, the median home sale price rose 3 percent year-over-year in August, the largest annual jump since October. Buyer demand remained below pre-pandemic levels but prices were sustained because overall housing supply remained at historic lows.
New listings increased modestly from July to August, giving the industry hope that new listings have reached rock bottom.
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Boston condo for sale buyers facing the question famously posed by game-show host Howie Mandel are increasingly saying, “No deal.”
Nationwide 60,000 home purchase agreements were ripped up last month, equivalent to 14.9 percent of homes that went under contract that month, according to a report from Redfin. The canceled contracts include deals agreed upon before June.
That’s the highest percentage since Redfin began collecting the data in 2017, excluding March and April 2020, the first two months of the pandemic.
Percentage of canceled real estate contracts is up 12.7%
The percentage of canceled contracts compared to homes put under contract is up from 12.7 percent in May and up from 11.2 percent year-over-year.
Those who are canceling contracts can largely be tucked into two camps. Some are exercising contingency clauses, which was not an option for Boston condo buyers who waived such escape clauses to increase their offer’s chances of being accepted when the market was hotter.
There are backing out because mortgage rate increases rendered their accepted bids unaffordable. In mid-June, the average 30-year fixed-rate loan flew past 6 percent, significantly higher than it was at the beginning of the year, when it was at an average of 3.22 percent.
Housing prices are still rising but less than they were, and signed contracts indicate the number of sales will drop in the coming months. That might ease the buyers’ panic that had many closing on homes they had never even visited.
Mortgage rates recently started falling back toward 5 percent, which may alleviate some problems for would-be homebuyers, but that was not the case for most of June, on which the report is based.
“If rates were at 5 percent when you made an offer, but reached 5.8 percent by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan,” said Redfin deputy chief economist Taylor Marr in the report.
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