Everything You Need to Know About a Pending Home Sale
Here's what buyers, sellers and interested parties should do while a real estate deal is pending.
Few home sales fall through once they reach pending status, but that doesn't mean all parties don't have plenty of work to complete before closing day.(Getty Images)
Few moments are as exciting for home sellers and homebuyers as when a “sold” badge is added to the For Sale sign in front of your property. But when you drive through neighborhoods, especially as you’re house hunting, you may see the occasional “sale pending” badge posted instead.
So what does it mean when a home sale is pending?
A pending home sale takes place after the seller has accepted an offer and the contract between both parties has been signed. When a home sale is pending, it is no longer considered an active listing on the local multiple listing service, which is where agents provide information on available properties. Public sites for marketing properties, including Zillow, Trulia and Redfin, also pull listing information from the local MLS. When a property is taken off the market on the MLS, its availability is also removed from those websites.
When a deal is considered pending may vary depending on where you live. In some cases, pending could include the due diligence period, where the property undergoes an inspection and a public record check is done to make sure there are no legal issues. In other markets, the pending phase could start after the due diligence phase. Hiccups or surprises during the pending period could require new negotiations or dismantle the deal, so the buyer, seller and their real estate agents must work to make sure the deal closes successfully.
Read:The Guide to Buying a Home. ]
How to Stop a Pending Home Sale From Falling Through
From the point an offer is accepted until closing, it’s possible the deal could fall through. Here are some common reasons that home sales fail, and how homebuyers and sellers can avoid them:
- Financing. Buyers can reduce their chances of being denied financing by a lender by getting preapproved for a mortgage. In fact, many sellers prefer preapproval when considering an offer. Once an offer has been made and the loan is being underwritten, buyers should avoid making major purchases or quitting their job, which lenders may view as red flags and deny the loan.
- Home inspection. Issues that are uncovered during the home inspection, such as a leaky roof or a renovation that doesn’t meet municipal building codes, can lead to a dismantling of negotiations. A buyer should know ahead of time what his or her threshold is for taking on issues with the home. Sellers can eliminate surprise problems by getting a prelisting inspection, which allows them to either fix or disclose problems to potential buyers before going under contract.
- Appraisal. Lenders often require an appraisal of the property prior to mortgage approval. If the appraised market value is significantly below the purchase price, the approved loan can be denied or lowered to the appraised amount. Sellers should work with their agent to price the property realistically, and buyers should avoid getting caught up in the excitement of a bidding war and offering a price that's too high.
- Liens on the home. If the title insurance company discovers conflicting claims to ownership of the property or liens on the home, the seller will have to work to settle the issues prior to closing. A lender may decline to approve the mortgage if the issues cannot be settled, or the buyer may choose to walk away.
- Unforeseen circumstances. Until March 2020, other outside factors were unlikely to derail a pending real estate deal. However, the COVID-19 pandemic has had a significant impact on real estate. While many deals that were pending prior to stay-at-home orders closed with minor changes, such as drive-thru closings, newly pending deals are including contingencies to allow for easier exits for either the buyer or seller if financial or health problems come up as a result of the pandemic.
Here’s what buyers and sellers need to know about the pending sale process.
Buyer's Role in a Pending Sale
After an offer is accepted, the real work for the buyer begins. The best way a buyer can prepare for this stage is to tap the necessary professionals, from the mortgage lender and title insurance company to the real estate agent and inspector.
In most markets, the due diligence period occurs in the 10 days after the contract is signed. The formal application for the loan is submitted to the mortgage lender to issue an appraiser to research the house and the area to determine the property's market value. Separately, an inspection should be scheduled, and typically a real estate attorney will explore public documents on the property to examine other details, like an easement for future road widening, that could affect the deal.
The buyer often opts to attend the home inspection, to ask questions and gain insight about the house from the inspector. During the coronavirus pandemic, however, inspectors are asking all parties involved to stay away during the inspection, and for the report and details to be given later via phone or video call and written report. “The report itself (and) the experience has really been more visual than ever before (the pandemic),” says Kathleen Kuhn, president and CEO of HouseMaster, a national home inspection company headquartered in Somerville, New Jersey.
If everything checks out and both parties either negotiate on or agree to waive the contingencies regarding the inspection or appraisal, buyers may find themselves simply waiting for closing day.
But there’s still work to be done. Buyers should keep in contact with their mortgage lender to ensure they're provided all the right financial documents and that there are no issues with the mortgage underwriting. A delay could push back the closing date, which could cause problems for both the buyer and seller.
In some places like New York, due diligence is conducted before the property goes under contract, and the focus during the pending period is on getting approval from the building's governing body. If the home you’re buying is part of a homeowners association, condominium community or cooperative, you’ll need to receive information about the association or board. In a co-op situation, the board will also need to approve you as a future resident.
The final step in the pending process – the closing of the home purchase – is seeing significant changes amid the COVID-19 pandemic that may require additional preparation and patience. Title insurance companies that are often instrumental in the closing coordination are working to quickly adapt to physical distance guidelines to reduce the chances of spreading the virus.
The closing may require a few extra days than it did before the pandemic to sort out remote notary authorization based on state requirements, changes to the local municipality’s procedure for filing the deed and figuring out the best way to close safely. “Now more and more title companies, if not all, are offering curbside closings,” says Kathy Kwak, vice president of title and escrow operations and counsel for Proper Title LLC, a title insurance company based in the Chicago area.
Seller's Role in a Pending Sale
While the buyer is busy throughout the pending process, the seller has more time to relax. “After the contract is signed, all the seller has to do is wait,” says Lisa Lippman, a licensed associate real estate broker for Brown Harris Stevens in New York City.
The listing agent typically schedules the inspection, appraisal or any other visits to the property, but the seller may need to be present to let people in. The seller may also choose to witness the inspection or opt to be out of the house.
However, Toni Mikel, owner and broker of Bluebird Real Estate in Portland, Oregon, stresses that the seller should be sure about the deal before it becomes a pending sale because at that point he or she doesn’t have the ability to back out of the deal – only the buyer is legally able to cancel the contract with no real cause needed.
With negotiations stemming from issues found in the due diligence process, “the seller then gets to decide what they want to say yes to,” Mikel explains. A seller can refuse to negotiate on price if the property appraises for less or decline to make needed repairs that surface in the inspection, but Mikel points out that if the seller appears to purposely be trying to make the buyer back out, it could lead to a lawsuit for breach of contract.
The final step in the pending process for the seller is to move out and leave the house in clean condition. The buyer will do a walk-through a couple days before closing. By then, Lippman recommends that her sellers hire a cleaning crew.
“They should leave it a little bit more than broom clean,” she says. When it’s dirty, the buyer may look at details a little more carefully and find issues with nail holes or minor scuffs they wouldn’t have pointed out otherwise.
What a Pending Sale Means for Interested Buyers
If you’re house hunting and the property you had hoped to make an offer on just went pending on the local MLS, can you still make an offer?
Typically the listing agent no longer accepts offers once the property is listed as pending sale, so you won’t be able to place your bid.
But real estate deals can fall through for a variety of reasons, so a pending sale isn’t a done deal. While you may not be able to submit a formal offer while the deal is pending, you can ask your agent to get in touch with the listing agent to inquire about the deal and potentially get a heads-up if the property goes back on the market so you can make an offer before other buyers.
Counting on a deal to fall through may not be the best use of your time as a house hunter, however. If a deal goes south because of a previously undiscovered issue, such as liens on the property or sudden damage to the house, it may be less desirable to you as well.