Home sale agreements are falling apart

Spending months to find the perfect home in your price range, only to have your mortgage application rejected, or a home inspection turn up expensive repairs, is a nightmare - one that is coming true with increasing frequency, according to a new report from real estate listings website Trulia.

A Trulia analysis of U.S. listings shows that 3.9 percent of homes that moved from for-sale to pending moved back to for-sale again, nearly double the rate in 2015. Such "failed sales" increased in 96 of the 100 biggest U.S. metros, with big swings in areas large and small, rich and poor. That includes Los Angeles and Charleston, South Carolina, as well as San Jose, California, and Akron, Ohio.

In Ventura County, California, where the median home value is $548,000, 11.6 percent of prospective sales failed to close in 2016. That's the highest in the U.S., up from 3.1 percent in 2015. Tucson, Arizona, where the median home price is $176,000, had the second-highest rate of failed sales, at 10.8 percent, up from 3.5 percent the year before.

The problem of failed sales has been most acute for cheaper homes and older ones: Some 6.3 percent of sales of starter homes fell through last year, according to Trulia's analysis, compared with 3.6 percent of so-called premium home sales. Homes built in the 1960s had the highest fail rates, while sales of newer and older houses were more likely to go through.

Trulia's data don't explain why listings reverted from pending to for-sale, but broadly speaking, a few factors can reliably torpedo a deal:

• The buyer's mortgage doesn't come through.

This can happen even for buyers who have been prequalified, especially when a buyer has to stretch to outbid rival house hunters. It's worth noting that borrowers are having an easier time getting mortgages: 77 percent of purchase mortgages made it to closing in October, according to mortgage software company Ellie Mae, the highest percentage since 2012.

• A home appraiser values the home below the sales price.

Low appraisals are more common in hot markets, where buyers bid up prices beyond what appraisers think homes are worth. But there were plenty of hot markets in 2015, when the fail rate was lower, so it's not obvious why low appraisals are responsible for increased failed sales. Navigating the appraisal process has been an issue for buyers since reforms passed in the aftermath of the foreclosure crisis, said Robert Gleason, chief executive officer of the Greater Fort Worth Realtors Association. "Any area you have a hot market is going to be a concern," he said. "Prices have gone up quite a bit, and it can take a while for appraisals to catch up."

• Defects discovered in home inspections give a buyer reason to walk away.

A house that needs expensive repairs to fix a cracked foundation, say, or a faulty roof, may stop looking like a good value. That helps explain why sales of older homes are more likely to fall through.

As to why these things might be throwing a wrench into more sales than before, Felipe Chacon, a data analyst at Trulia, said an increase in first-time homebuyers could offer a plausible explanation. Inventory shortages in many U.S. markets have been most acute for the entry-level homes first-time buyers usually seek. Those buyers can face greater scrutiny from mortgage lenders, Chacon said.

Trulia's data only go back two years, so it doesn't indicate what rate is historically normal. Lyle Elliott, branch manager for Berkshire Hathaway HomeServices office in Ventura, California, didn't think his metropolitan area's fail rate of 11.6 percent was particularly surprising. "We've had a robust year," he said. "When you have more sales, you also have more sales that don't complete."