Buying or selling a home can be a stressful, exciting, and overwhelming experience. It’s easy to overlook warning signs when emotions are high, but getting involved in a bad deal can be devastating.
Walking away at the right time is one of the best skills you can develop when entering the real estate market. Buyers and sellers alike should stay alert for red flags during every step of the process.
Red Flags for Buyers
Many Homes for Sale in the Neighborhood
Unless the home is in a new development, you should be skeptical if there are numerous houses for sale in the neighborhood. There may be a reason so many homeowners are trying to get out of the community.
Construction or development projects in suburban or rural communities can lead homeowners to jump ship. Other factors at play could include rising unemployment, increasing crime rates, and economic downturns in the area. These circumstances could allow you to make a lower offer, but you should be sure that you’re fully informed of the condition of the neighborhood before you commit.
Price Is Too Good to Be True
A price that sounds too good to be true is one of the biggest red flags in real estate. If the sellers are asking for less than the property’s market value, something is almost certainly wrong with the home.
If you still want to make an offer, including an inspection contingency in the contract is critical. Give yourself the ability to renegotiate or walk away entirely when you discover the reason for the low pricing.
Home Has Been Relisted Multiple Times
Real estate websites usually let you see a home’s listing history. You should proceed with caution if a house was listed, removed from the market, and then relisted.
Sellers sometimes remove and relist their homes if they overestimated the house’s value and want to start fresh at a more reasonable price. However, there’s also a chance that the home went under contract after its initial listing and the inspection revealed a major problem that caused the buyer to back out. If you’re still interested in the property, ask plenty of questions and hire a reputable home inspector.
Signs of Water Damage
The need for a few minor repairs may not be a deal-breaker for you, but water damage should make you think twice. Look out for these warning signs:
- Water stains on the ceilings
- Peeling or bubbling wall paint
- Warped floors
- Damp surfaces
- Musty odors
Water damage can be a sign that the house has a bad plumbing system or that the property floods frequently. If the water hasn’t been properly mitigated, it can also lead to a serious mold problem, which can be even more costly to fix.
Foundation Issues
Foundation repair is one of the most costly expenses homeowners can encounter. A bad foundation can mean that the home isn’t structurally sound, an issue that needs immediate attention. If the house shows signs of foundation problems, it may be best to walk away.
The following are some of the most common signs of a bad foundation:
- Cracks in interior or exterior walls
- Cracks in the floors
- Uneven or sagging floors
- Gaps forming between windows and walls
- Cabinets separating from the walls
- Cracked or leaning chimney
HOA Problems
A homeowners association isn’t a red flag in and of itself. However, some HOAs are poorly managed or impose rules that conflict with your values or lifestyle. If a house you’re interested in is located in an HOA neighborhood, you should read through the HOA’s documents before making an offer.
Consider how much the HOA charges in fees and whether the association is in good financial standing. Any past or ongoing litigation against the HOA can be cause for concern.
Red Flags for Sellers
No Pre-Approval
While a pre-approval isn’t required to make an offer, any buyer who’s serious about purchasing a home will get pre-qualified or pre-approved for a mortgage. The pre-approval letter confirms that they’re eligible for the home loan.
Accepting an offer without a pre-approval letter is risky because you have no way of knowing whether the buyer can actually obtain a mortgage. If they can’t get financing, your home will have to go active on the market again.
Little or No Earnest Money
An earnest money deposit is another way a buyer can show you they’re committed to the purchase. If they back out of the sale, you can keep the deposit. Most buyers make an earnest money deposit of 1% to 3% of the purchase price.
If the buyer makes a deposit of less than 1% or doesn’t offer any earnest money at all, you should be wary. They may be avoiding paying earnest money because they know there’s a good chance they’ll back out of the deal.
Too Many Contingencies
Most offers will come with at least one or two contingencies. For example, most buyers include contingencies that allow them to renegotiate or exit the deal if the home inspection or appraisal have unfavorable results.
If the contract includes numerous restrictive contingencies, it may be best to wait for a different offer. With too many contingencies, it may feel difficult or impossible to fulfill all the conditions of the sale.
Lengthy Closing Period
A lengthy closing period can have some advantages for you as the seller, especially if you’re still searching for your next home. However, waiting too long to close on the house can also complicate your moving plans.
Buyers may request an extended closing period because they have to sell their current home, are having trouble securing financing, or have some other obstacle they need to overcome before they can buy your house. This increases the likelihood that the deal will fall through and that you’ll have wasted your time on this offer.
Asking for Cash Back
It’s fairly common for buyers to ask sellers to offer them a credit toward their closing costs, which helps them reduce the amount of money they have to pay up front for the home. However, a buyer should never offer more than the property is worth and ask the seller for the difference in cash. If the buyer tries to make a cash-back deal with you, they’re likely engaging in fraudulent activity.
Stay Alert for Red Flags
Whether you’re a buyer or a seller, you should be on the lookout for warning signs of a bad deal. When you recognize a red flag early in the process, you can either put more safeguards in place to protect yourself or walk away entirely. If you notice anything that seems suspicious or concerning, address it immediately with a trusted real estate agent.
