Keep Your Pending Home Sale From Collapsing

Last year ended with a slight increase in the number of homes under contract, according to new figures out this week. Recently, the National Association of Realtors (NAR) released its latest Pending Home Sales Index Report, and there's a tiny bit of good news. The index measures pending home sales, meaning those that are under contract but haven't yet gone through closing. The latest index, based on contracts signed in December, showed activity up 1% from November, and up nearly 11% from a year before.

But the housing market is still far from rosy. The Wall Street Journal reported this week that home ownership is down to its lowest level in a decade, with only 67.3% of Americans owning their own homes at the end of 2009.

Still, the bump in pending sales is a small victory for the real estate market overall. But for individual buyers or sellers who are still in the "pending" stage, figures are meaningless until you have a check or a new set of keys in your hand. The NAR says around 80% of homes under contract successfully go from "pending" to "sold" in about two months, but quite a few others do fall through. (From REITs to owning your own home, find out how diversify your portfolio with real estate assets, in Add Some Real Estate To Your Portfolio.)

Here's how to make sure your pending sale survives to the closing.  

• Have a Lender on Board. Better Yet, Have Two
  Many deals evaporate when the financing falls through. Buyers should get pre-approved, if at all possible, and be clear on exactly what (if any) conditions must be met in order to get final approval. It's a good idea to have a back-up lender lined up, in case the first one falls through.
  
  
• Keep it Covered
  Make sure the property is fully insured right up until the moment of closing. If you're a buyer, ask for a binder to cover your interest in the property during the "under contract" period. Otherwise, should a fire or other emergency happen before the closing – and this happens more often than you might think – you could be left high and dry. For sellers, resist the temptation to cut corners on your coverage once you have a perspective buyer.
  
  
• Inspect Early
  By getting any required inspections done quickly, you can be sure you want to go through with the deal – or make any necessary adjustments/repairs – before the buyer is too emotionally and financially invested in the deal. For sellers, getting an early inspection gives you a chance to have problems repaired before they even become an issue in the negotiations.
  
  
• Stay Away from Short Sales
  Yes, they're popular – and plentiful – these days, but short sales are also notoriously troublesome during the pending process. The process is time-consuming, involves a ton of paperwork and often ends up with the lender nixing the deal after all that work by both the buyer and seller. 
  
  
• Look for Liens from the Start
  Some owners may be completely unaware of liens or other "clouds" on the title – until the buyer's attorney discovers it a week before the scheduled closing, and then the whole deal is off. This is a case where ignorance is definitely not bliss. Yes, it's possible that the lien could be a mistake, but by the time you clear it up your buyer may be long gone. Check for any problems on your property's title as soon as you decide to sell, and take care of them right away.

Conclusion
Any real estate transaction can fall through, and there's no such thing as an ironclad deal until you've signed on the dotted line at closing. But by steering clear of these common pitfalls, you greatly increase your odds of going from "pending" to "sold" without any nasty surprises. (Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible, in Score A Cheap Mortgage.)