If you're looking for an apartment in NYC, once in a while a listing will proclaim right up top: “Deal fell through!” or “Back on the market!” The way it's presented makes it sound enticing: It smacks of a possible window of opportunity that's imminently closing. But is it exciting?
With something as complicated as a New York City real estate transaction, the number of ways a deal can go south is close to infinite, but market trends point to the possibility of more such scenarios happening. A deal that's back on the market does offer buyers a second chance at an apartment and can even indicate a seller is ready to negotiate. It can also be a warning sign. The truth is, you should never come to any iron-clad conclusions when you first see a unit's back on the market.
“As the NYC real estate market continues to soften, we are seeing more and more deals fall through,” says CORE’s Ben Jacobs. “Buyers are bidding on multiple apartments to see where they can get the best value. Even if an offer is accepted, I'm seeing many buyers walk away before a contract is even issued.”
Other possible explanations include financing problems, life changes, a building's financial status, and legal issues.
“From my experience to hear that ‘a deal fell through’ could either be a really good thing or a really bad thing,” says Diana Kosov of Citi Habitats. “It means the listing agent—and the buyer—thought they had found the perfect new owner, but during the vetting process before the final closing, an issue occurred causing the property to hit the market once again.”
Buyer backed out: life circumstances
On the buyer’s end, a deal can be killed for numerous reasons. It may be as simple as they decided to move forward on another place (because it was better, cheaper, or offered a shorter commute). They may have decided to rent instead of buy, or changed jobs and moved from New York altogether. Life happens, and sometimes it affects real estate deals.
Buyer backed out: info uncovered
If the apartment is in a condo or a co-op, between an accepted offer and signed contract, the buyer's attorney will perform due diligence, which means, among other research, that they review the building’s key documents.
“That will include the [building’s] offering plan, financial statements, and board minutes,” says Andrea Saturno-Sanjana of Brown Harris Stevens. “The buyer might decide not to move forward on the property in light of this information.” (An example of something that might cause an attorney to advise against a purchase is severe budgetary mismanagement, a co-op’s precarious financial situation, troubling legal woes, etc.)
If the property is a single- or multi-family unit, an inspection of the building revealing major flaws (such as a faulty foundation, extensive mold or water damage) or significant expenses not anticipated (asbestos removal, major plumbing or electric work) may cause a buyer to back out of a deal.
However, it should be noted that some contracts will specify that the discovery of certain issues are not enough cause for backing out; it depends on what is contractually agreed upon prior to the inspection.
Contingencies not met
Sometimes, a deal can only proceed under certain circumstances: If X happens, then Y can happen. “Sometimes a new buyer’s offer is contingent on the sale of their own current home. If their home doesn’t sell in the given amount of time, then the deal is dead,” says Kosov. “Another common reason happens when a potential buyer’s financing falls through. Even if they have been pre-approved, in the meantime, maybe they lost their job, racked up additional debt, or the lender changed their guidelines,” he says. Additionally, if an apartment or building is not appraised at a high enough value, a buyer may not be able to secure financing.
If you're buying a co-op and you've reached the interview stage, the meeting is typically a formality but there can be exceptions to this rule. “While it doesn’t happen too often, sometimes the potential buyer was rejected by the co-op board,” says Kosov. “Most often, this happens due to financial reasons uncovered in their board package.”
Seller backed out
Most of the time, fizzled deals are due to the causes listed above, but apparently, some sellers like to toy with prospective buyers’ emotions. “It might be that the seller is ‘testing the market’ and might only intend to sell at a specific price or at a later time,” says Saturno-Sanjana. (This is less common, and probably even more so in a buyer’s market.)
Is opportunity knocking?
Whether the cratering of a deal is good or bad news for a buyer depends on both the reason(s) for the fizzle and the individual circumstances of the seller.
It takes time for a deal to fall through, which can make a listing seem less than fresh to other shoppers. This could be to a buyer’s advantage "if it’s been hanging around for a long time, the seller could be ready to just take the next deal that comes down the pike,” says The Corcoran Group’s James Cornell.
“Whether or not it’s an advantage for the new would-be buyers depends on the seller’s outlook,” says Kosov. “If they are motivated – and were counting on the prior deal to go through, this could mean they are more likely to negotiate price or other terms of the sale.”
However, it’s not a guarantee that the seller is ready to bargain—but it is a chance to bid on a place you missed (or dismissed) earlier in your search before you had a better sense of what was out there. “Just because the deal fell through, does not mean the seller is willing to negotiate the price or the terms further,” says Vinokur. “The advantage lies in the fact that if a buyer missed this property for whatever reason, this is an opportunity for the buyer to make an offer.”
Or is it a sign of trouble?
There is no reason to assume a failed deal is a sign of a lemon. Oftentimes, it’s the result of a problem on the buyer’s side, not the seller’s.
Still, you’ll want to be extra vigilant with your due diligence. “It could be a sign of a difficult board or underlying issues with the home’s condition that were uncovered during the inspection process.” says Kosov.
A deal that doesn’t go through can also leave the seller feeling “burned,” resulting in more restrictive, sometimes insurmountable, terms of sale. “If the earlier deal fell through because of appraisal or financing issues, the seller might look more carefully at the buyer's financing in any future offers. Fewer contingencies—cash or non-contingent financing—could be attractive to a seller in this situation,” says Saturno-Sanjana.
How do you find out what happened
Your agent is going to be important when it comes to figuring out what happened. “The buyer's agent must ask the right questions to get the correct story,” says Jacobs. “Most good listing agents will be transparent to avoid another deal falling apart.”
If it was a “no-fault” situation on the seller’s side, the seller will often encourage their agent to share the reason a previous sale did not happen, so that prospective buyers aren’t scared off.
But, of course, not every failed deal meets that criteria, which is why you should evaluate information with healthy skepticism. “Sadly, there are many agents out there who will not share the ‘real story’,” says Vinokur, who adds that if something doesn’t quite add up, a little asking around can be useful.
“Speaking with neighbors, building staff, managing agents and other brokers in a tactful way will help put pieces of the puzzle together.”
If a situation is less cut and dry, you might never know the full story. “A good buyer's agent will maintain good communication with the listing agent throughout the process, so while you might never know every single detail of what happened, you should have enough information to decide whether or not to make an offer on the property,” says Saturno-Sanjana.
And while the seller’s agent has a fiduciary responsibility to their client, they’ve also been charged with selling an apartment, which may require full transparency the second time around. “An honest and forthright broker will often disclose why a deal died, even though they might not want to,” says Cornell. “A broker yesterday told me that a previous deal died at the inspection. Kudos to them.”