Prices Drop When Property Sale Fails

Posted on 09/9/08 7:30 AM

Deals that don’t end up closing, also known as sale fails are increasingly common these days. Some of these happen for a good reason i.e. the prospective buyer discovers the infamous skeleton in the closet.

However, the seller is not always the one to blame. Tighter credit standards have lead to a spike in unexpected loss of funding for a number of (confident) buyers. A property that was destined for a new owner then returns to the market – tarnished. Given that most buyers aren’t immediately in a position to establish the reasons behind the failed deal i.e. misleading seller vs. flaky buyer, sellers are often left with little choice but to lower the price in an effort to address the “history” of the property and attract buyers once again.

Here are a couple of examples of properties that returned to the market – untouched and unchanged – but priced with a different kind of motivation:

Small condo in NW Portland, listed in the mid 200s. After roughly 5 months an offer is procured. Six weeks later the deal falls apart – buyer couldn’t meet lender requirements for down payment. Condo returns to the market with a 25k discount.
Bungalow located in the inner southeast. Listing started out in the high 500s, got an offer that was contingent on the buyer selling his home. Buyer was unable to sell in time and deal fell through. Seller then got another offer that fell through. House is now priced in the low 500s.
Starter home in NE Portland, listed in the high 100s. Offer comes in after three months. Buyer ends up not getting the kind of interest rate he expected and pulls out. Frustrated seller puts house back on the market and lowers by 10 grand.

All of these houses are essentially selling for less than the offers the sellers received just weeks before, ultimately providing a stellar opportunity ot buy below market value.