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The contract is signed. Or at least all BUT signed. Everybody’s smiling.
And then the news comes in … the deal’s off.
It’s one of the most painful moments in real estate.
The kind of thing that keeps you up at night before it happens and haunts your dreams in the aftermath. The question you’re left asking is simple: “What went wrong?”
First, you may be surprised to learn that one in four real estate deals fall through. So rest assured, you’re not alone.
Second, the most common deal killing culprits come down to just a handful of almost 100% avoidable missteps.
Given that the stakes for this article are so high, I decided to not only dig deep into my personal experience and the very best in current research … I also asked some of the most successful real estate investors for help.
What follows is the cumulative wisdom — much of which was paid for by our own mistakes and failures — to walk you through the five reasons real estate deals fall through and exactly how to overcome them.
Killer #1: False Advertising
Let me be clear: real estate isn’t the only sector that suffers from false advertising. But it is an issue that plagues our industry. News stories, Facebook posts, and reviews on everything from Angie’s List to Google Business Pages abound on exactly this topic.
Ironically, most false advertising isn’t so much a matter of bare-faced lies. Generally, real estate agents and investors have the best of intentions. Nonetheless, in our rush to “get the sale,” it’s easy to get caught up in a firestorm of negative feedback. Getting the facts wrong — even slightly — can have profound implications not just on individual deal … but your reputation overall.
So what’s the primary source of all this angst?
In a word: pictures.
Investors and buyers depend heavily not just on the information presented in ads and listings, but especially the images. This is all the more true with online real-estate where many deals are carried to near completion without physically seeing the property.
For example, consider this “true to life” photograph that recently landed one Australian real estate agent in some hot water:
Here’s what the house actually looked like when buyers showed up:
After being flooded with complaints, the Office of NSW Fair Trading ordered the picture be removed. As one newspaper reported:
The real estate agency and their photographers came forward and denied the image had been retouched to remove the water tower; however, graphic design, photography and retouching experts told Daily Mail Australia they believed it had been edited.
Of course, you don’t need “experts” to tell you something overtly deceptive took place with that one.
However, even if you don’t intentionally deceive prospective customers through Photoshop, small visual “fudges” — like excluding power lines or other surrounding blemishes, adding filters that obscure less-than-move-in-ready condition, and even avoiding unflattering images of your property in total — can be just as damaging … especially when your buyer finally shows up in person.
As Justin Lee from JL Investing, LLC explains,
Getting a digital handshake or even the contract accepted is just one step in the actual closing of any real estate transaction.
From there, it comes down to getting done exactly what’s written or been discussed into the agreement. For the investor, making sure the property is indeed as advertised is a must. If the property is defective, or in worse shape than originally portrayed, you’ll either need to negotiate a reduction in price to cover the repairs … or watch the entire deal fall apart.
As obvious as it might sound, honesty — especially in the real estate industry where trust is at a premium — is the best policy.
Killer #2: Delayed Inspections
When it comes to inspections, you might think this deal killer flows right out our last point: false advertising.
In a sense, it does. Sellers need to be aware and honest about any serious flaws in the property well before the buyer’s own inspection. If something crops up at the inspection, it becomes a negotiation tool for the buyer … or even a complete deal breaker.
One home inspector warns against the two most common property types that require extra attention both prior to and during the buyer’s inspection process.
First, flipped properties are often bought at auctions, where pre-purchasing inspections are not the norm. The investor buys the home to make changes based on how much it can be sold for, not what the house needs in terms of repairs.
When the home is inspected, nasty surprises pop up that will cost prospective buyers a lot to fix.
Second, houses that are used as vacation homes often get added onto in a hodge-podge manner. On the outside, they look modern and interesting, but are actually dysfunctional, again adding to unexpected buyer costs.
Unconventional rooflines may be a tell-tale sign of a vacation home that’s been added on to.
However, having noted the traditional inspection pitfalls… the real kabash doesn’t so much come from defective, or less-than-upfront inspections.
One mistake I see a lot of newbies make is giving their cash buyers an inspection period on their wholesale deals when they go under contract. By doing so, buyers often wait until the last minute and then decide to bail on the deal, leaving the wholesaler scrambling to find a buyer, or potentially even risk losing the deal with the seller.
We never offer our cash buyers an inspection period on the contract.
Their time to inspect the deal is when we host one of our 1-hour open houses that typically creates a ‘buyer feeding frenzy.’ All their due diligence should be done prior to going under contract. They are buying the property AS-IS, and you should make it clear that their deposit is non-refundable once you go under contract.
Killer #3: No Urgency
Urgency is a powerful force in any sale.
In fact, urgency is itself a specific application of what’s known as the “scarcity principle.” In his modern-day classic Influence: Science and Practice, Dr. Robert Cialdini explains:
According to the scarcity principle, people assign more value to opportunities [and objects] when they are less available.
The use of this principle for profit can be seen in such compliance techniques as the ‘limited number’ and ‘deadline’ tactics, wherein practitioners try to convince us that access to what they are offering is restricted by amount or time.
In other words, people want what they can’t have … or at least what they won’t be able to have very, very soon.
Amazon uses this principle all the time. Notice both the time limitations highlighted below as well the availability — “99% Claimed”:
In real estate, the same is true: a genuine sense of urgency speeds up the entire process. This doesn’t just lead to greater desire and demand, it also preempts buyers who would otherwise fall victim to over-thinking the deal and calling it off.
As Alex Pardo puts it:
Train your buyers that your deals sell fast: within 24 hours. This is the best way to create urgency and scarcity!
Or consider the way Inman describes the principle:
If there is no fear of losing the house if they do not act soon, there is no urgency. So after you have developed trust and determined their needs, including a vision for their lifestyle, your showing schedule must meet or exceed their expectations.
This can be done in a host of ways, all of which are ethical:
- Limited-time or limited-availability open houses
- Facebook Live your most well-attended events to demonstrate interest
- Stacking one-on-one showings or scheduling them to overlap
- Finance incentive tied directly to hard-and-fast deadlines
Creating buying or sell urgency is an art, as opposed to just being a heavy-handed and pushy investor.
Above all, you must tap into a lead’s emotions and show them why — if they delay — they risk losing the vision in their heart. This comes down to knowing each prospect’s motivations:
- Why do they want to buy?
- What features are they looking for?
- What stage of life are they in?
- What worries them about the future?
- What are their dreams and how does the property fit into them?
Just remember … lack of urgency doesn’t just lead to lack of desirability. The longer you give a prospect to decide, the longer they have to kill the deal. As a real estate investor, the Rolling Stones were wrong: time is NOT on your side.
Killer #4: Poor Communication
Poor communication can poison any relationship.
In fact, it’s the leading cause of divorce … even when neither person wants one. Likewise, companies lose billions annually on account of it.
And — of course — poor communication throughout the real-estate deal can lead to its demise.
In How to tackle real estate’s most problematic communication barriers, Rodd Mobraten explains:
Communication is at the center of real estate. While it is crucial for the success of any transaction — from a traditional resale to a short sale — proper communication is almost never achieved without facing major obstacles.
Simply put, a real estate transaction is a negotiation between a buyer and a seller who must communicate effectively to complete a deal. However, looking more closely, their ability to communicate depends on the real estate agents and other entities involved in the process such as closing and title offices, attorneys and loan originators.
The truth is communication problems often start from the jump. Effective communication begins with the actual ad, to the interaction between the selling agent, seller, buyer and all the other relevant parties in a deal, right from the start and throughout the entire closing process.
Odds are that none of this exactly comes as a surprise. You already know how vital clear communication is. So what can you do to not just foresee, but proactively anticipate and correct communication issues?
Alexis Eldorrado, founder, and managing broker of Eldorrado Chicago Real Estate, advises every party in the deal to think of each other as “teammates” and to put systems in place to streamline as much as possible.
This means six must-follow steps to ensure communication isn’t the reason real estate deals fall through:
1. Create a master list of each person’s preferred communication channel.
Some people prefer email, others text … others Facebook Messenger. The only way to make sure nothing falls through the cracks — “Oh, I sent that to you a week ago. I don’t know why you didn’t get it.” — is to customize your approach to communication person by person.
2. Get out in front of hard to contact stakeholders.
Most notorious are the current homeowner’s lender — both for unreleased deeds of trust as well as payoff amounts — and heirs in the case of estate deals.
3. Outline a standard schedule for communication.
That schedule must include every step from the very beginning. Let customers, employees, and even third-party representatives know what to expect … and when to expect it. Follow that schedule rigorously.
4. When unexpected developments or delays occur, again, make sure everyone involved is notified.
Unless there’s a confidential matter, all communication emailed must be cc’d to every “team member” — or sent via their preferred channel — to encourage complete transparency.
5. Even though you’ve set up a schedule, don’t expect everyone to remember.
End each piece of communication with a quick reminder of exactly what’s next, what each person is responsible for, and when the “due date” is.
6. If it really matters: pick up the phone.
Picking up the phone and actually calling is important. Much better than just a huge email plus text blast. People are busy and easily forget about an email or text. So calling them live in person helps push them to take some action. Plus building relationships while on the phone is great too.
All that may sound like overkill … but it’s far better to over communicate than under communicate.
Killer #5: Funding Issues
Finally, the granddaddy deal killer of them all: MONEY
Funding issues are easily the most common reason real estate deals fall through. But there are ways to circumvent it.
Let’s start with the low-hanging fruit for buyers.
Whenever possible, find buyers who have been pre-approved for loans. Deals can still fall through, but the odds decrease considerably. So too with cash buyers, but expect lower offers.
Secure proof of funds and earnest money as early in the process as possible. This is a great tactic to combine with urgency, but it’s also just smart bookkeeping and makes sure buyers have “skin in the game.”
Next, while the last point harped on this, it bears repeating: investors should work hard at keeping the channels of communication open with lenders, agents, and purchasers to “check in” on the status of the approvals process.
As far as sticking points with sellers, Justin Lee lays the situation out plain:
Having funding in place to close the deal should be your number one concern. This means making sure that you have the cash to get the deal closed or have the ability to assign it for a quick profit should you choose not to fund and close on the deal yourself.
Bear in mind that a lot of sellers are in their situation because they failed to take some sort of action like pay their mortgage, pay their taxes, or keep up with repairs. Sellers are disproportionately people who need a push to get things rolling.
Joshua Justiniano offers a number of helpful tips to do just that:
For example, help set up appointments with escrow. If they’ve called in, follow up immediately. For contracts by mail, make sure to include a return envelope that’s stamped and addressed. It’s the little things that keep the ball rolling.
If someone can’t vacate at settlement, this inhibits closing the deal. When they don’t have the money to go anywhere, sometimes we will give them an advance.
Identifying the major sticking points when it comes to funding issues — both for buyers and sellers — won’t ensure every deal goes through. But it will set you up for success with confidence and character.
Real Estate Deals Fall Through, But When They Do …
We’ve covered a lot of ground.
And I want to say a big “Thank You” to all my friends and colleagues that added their advice to this piece.
However, let me end with this. Failure is inevitable. Deals are going to fall through and yes … it’s going to hurt when they do. Even worse, because your livelihood depends on them: it’s going to be scary — insanely scary.
You’re going to lose sleep and at times feel embarrassed and stupid.
While this list should save you from a lot of needless heartache… it won’t save you from all of it.
So remember the words of Denis Waitley:
“Failure should be our teacher, not our undertaker. Failure is delay, not defeat. It is a temporary detour, not a dead-end. Failure is something we can avoid only by saying nothing, doing nothing, and being nothing.”
Real estate deals fall through… but real estate investors get back up.