Atlanta Ranked Third in Failed Real Estate Contracts

A recent Bloomberg article, citing a Trulia report, ranked Atlanta as third in the nation for real estate contracts failing to close. The Report indicates that, in 2016, nearly 11% of Atlanta real estate contracts fell through. This is nearly three times the 3.9% national average (the rate for Sage clients is less than 5%)

Neither the article nor the report discusses why the Atlanta contract failure rate might be so high. Lack of inventory and the related rapid increase in home prices that have characterized much of the metro Atlanta home market in recent years seem to be the underlying cause.

Most home purchases are financed; loan approval being conditioned on the property appraising for at least the contract purchase price. Appraisers use historical sales as the basis for current valuation. Where home prices are rapidly rising, appraised values can lag behind the prices buyers are willing to pay. If the property doesn’t appraise for at least the contract price, unless the price is renegotiated, the loan will not be approved and the contract will be terminated.

The form contract used by Atlanta real estate agents gives buyers the right to terminate the contract, without penalty, during their “Due Diligence Period.” Where the supply of homes is low relative to the demand, anxious buyers, particularly ones who have already lost out on one or more homes, will rush to get a home under contract. Predictably, these buyers are more likely to get “cold feet” and walk away from the deal during the DDP.

Understanding these market dynamics is critical for success as a buyer or seller in the current Atlanta market. There are strategies that can be employed to increase the likelihood of a deal staying intact and closing.

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