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Why a buyer’s best offer could lead to a canceled closing

On Behalf of | Nov 7, 2023 | Real Estate

Colorado has become one of the most expensive statewide real estate markets in the country. There has been a massive influx of residents from other states in recent years, and property prices have surged as a result. Those already established in Colorado benefit from price increases, as the fair market value for real property increased, increasing their personal wealth. Unfortunately, the market has become very competitive, creating challenges for existing homeowners looking to move to a new home and first-time homebuyers.

It can take a long time for buyers to find a property that falls within their budget and even longer to make a successful bid on one of those properties. Some buyers find that their transactions fall through at the 11th hour because of financing issues. Those who make particularly high bids on properties are at increased risk of not having the mortgage funding they need to follow through with their offer.

Appraisal gaps can cancel a closing

Lenders won’t just issue someone a blank check to spend how they want. They want to know that the property securing the mortgage is worth what the company will pay for it. Therefore, most transactions financed by mortgages will have to undergo inspections and appraisals.

The appraisal process involves bringing in a professional to look at the property’s condition and the sale price of other properties in recent months. The appraiser will determine what the property is likely worth. If the fair market value that an appraiser sets is lower than the amount the buyer offered, the transaction may stall out before closing. If the buyer cannot negotiate with the seller or bring in enough capital to cover the difference, an appraisal gap might mean they cannot finance the transaction.

It is, therefore, of the utmost importance for buyers to offer a realistic price when attempting to buy residential real property in Colorado. Simply seeking to outbid other buyers may leave a buyer in a situation where they may have to cancel the closing and possibly forfeit their earnest money if they did not include the right contingencies in their offer.

Learning more about the factors that can complicate residential real estate transactions may benefit those looking to buy real property in Colorado. Seeking guidance proactively is generally wise as a result.