The attorney review period allows both the buyer and seller to have a lawyer examine the purchase contract. But even once this mandatory review is complete, critical issues can still arise that may jeopardize or delay the real estate transaction. As a real estate attorney, I often get asked, “What could potentially go wrong following the attorney review period?”
Even after attorneys have reviewed and negotiated the deal, many problems can still derail a real estate transaction. Being aware of potential pitfalls ahead of time is key to ensuring smooth closings.
What Can Go Wrong After the Attorney Review Period?
After the attorney review period, the things that can go wrong are financing issues like the buyer’s loan falling through, an inspection revealing problems with the property condition, title defects preventing clean transfer of ownership, appraisal value coming in lower than the purchase price, and failure to reach agreement on contract terms and contingencies.
1. Buyer Financing Problems
If the buyer is obtaining a mortgage, one risk is their loan application being denied after review, or loan terms changing in a way that impacts the buyer’s ability to close. This leaves the buyer unable to secure financing as planned.
In such cases, potential solutions are renegotiating the purchase contract terms, the seller agreeing to owner finance, or terminating the agreement with earnest money returned. An extension can be granted, allowing more time to sort out financing.
2. Issues Uncovered During Inspection
Once the home inspection is completed, the report may reveal expensive repairs needed or problems impacting home value. Buyers often request the seller to fix issues or reduce the purchase price accordingly.
If the seller refuses repairs or credits, the buyer can terminate the contract.
3. Title Defects or Ownership Challenges
During title research, the title company may discover liens, easements, boundary gaps, pending legal action, or other title issues preventing a clean conveyance. These title clouds must be cleared.
If the seller is unwilling or unable to remedy title defects, the buyer may delay closing or terminate the contract and have earnest money returned.
4. Appraisal Value Lower Than Purchase Price
There is a risk of the appraisal coming in under the agreed purchase price, impacting the approved loan amount. Additionally, if the contract included an appraisal contingency, the failure to appraise allows the buyer to renegotiate the purchase price or back out of the deal..
If the parties cannot agree to a new purchase price that would satisfy the terms of the mortgage and / or appraisal contingency, the buyer will have grounds to terminate the contract and have earnest money returned.
5. Mutual Contract Agreement Not Reached
If disputes arise around proposed revisions to the purchase terms that the buyer and seller cannot resolve, this impasse can sink the deal. Both parties must get to “yes” for the contract to proceed.
6. Failure to Come to Terms on Any Issue
If the parties fail to finalize all critical terms during attorney review, such as price, repairs, credits or contract contingencies, then the real estate transaction is jeopardized. Open communication is key for finding common ground and compromise when possible. But sometimes, deals just collapse.
By understanding what may go wrong at various points throughout the buying process, buyers, sellers, and attorneys can take proactive steps to get ahead of problems before they derail transactions.
Learn more about the attorney review period in real estate.
Careful contract drafting also provides exit strategies through contingency clauses if needed.