About 5% of real estate contracts fall through before closing, according to the National Association of Realtors Confidence Index data from early 2026.1National Association of REALTORS®. REALTORS® Confidence Index Report So when people ask how often do closings fall through, the short answer is roughly one in twenty, down slightly from 6% the prior year. Another 14% experience delays but eventually close. The reasons deals collapse tend to cluster around a few structural pressure points in the closing process, and most of them are predictable if you know where to look.
How Market Conditions Move the Rate
The 5% figure is a national average, and it moves with the market. In a competitive seller’s market with low inventory, fewer deals fall apart because buyers compete aggressively and are less likely to push back during inspections or renegotiate after appraisals. In a buyer’s market, termination rates creep higher as purchasers feel less pressure to close and use more leverage at every stage.
The top three reasons deals fall apart have stayed remarkably consistent: home inspection problems, buyer financing issues, and appraisal shortfalls.2National Association of REALTORS®. What Is the Truth Behind Terminated Contracts and Distressed Sales Numbers They aren’t random bad luck. Each is a specific stage of the transaction where the deal has to clear a real hurdle, and each has its own failure pattern.
Financing Denials
Loan denials in the final days before closing happen more often than buyers expect. Lenders run a last-minute check on your finances, and anything that changed since your pre-approval can trigger a rejection. Taking on new debt like a car loan, running up credit card balances, or switching jobs can all push a file from approved to denied within days.
Debt-to-income ratio is where many buyers trip up. For conventional loans processed through Fannie Mae’s automated underwriting system, the maximum allowable ratio is 50%.3Fannie Mae. Debt-to-Income Ratios Manually underwritten loans face a tighter cap of 45%. A large financed purchase right before closing can push you past those limits and kill the deal.
Credit scores matter too. Conventional programs require a minimum 620 score.4Fannie Mae. Eligibility Matrix – December 10, 2025 FHA loans allow scores as low as 580 for a 3.5% down payment, or 500 with 10% down. A score drop below your program’s threshold at any point before closing can unwind the entire transaction.
A financing contingency lets you cancel the contract and recover your earnest money if the mortgage falls through, but only inside the negotiated contingency window. Miss that window and the protection is gone.
Appraisal Shortfalls
Your lender orders an independent appraisal to confirm the home’s market value supports the loan amount.5FDIC. Understanding Appraisals and Why They Matter If the appraiser values the property below your contract price, the lender won’t fund the full loan and you have a gap to cover.
Say you’re under contract for $400,000 but the appraisal comes back at $380,000. The lender bases its loan-to-value calculation on the lower number, leaving a $20,000 gap. You can pay the difference out of pocket, negotiate a price reduction with the seller, split the difference, or walk away if your contract includes an appraisal contingency.
Before giving up, you can request a reconsideration of value through your lender by providing additional comparable sales the appraiser may have missed or by correcting factual errors in the report. It doesn’t always work, but where comparable sales are scarce or the appraiser used outdated data, a well-supported rebuttal can close the gap.
Inspection Disputes
An inspection contingency gives you the right to hire a licensed inspector before you’re locked in. When the inspection turns up serious problems like foundation damage, failing roofing, or extensive mold, the negotiation that follows is where deals live or die.
The buyer asks for repairs or a credit. The seller agrees, counters, or refuses. If the gap between what the buyer needs and what the seller will give is too wide, the buyer can terminate within the inspection period and get their earnest money back.
Where it gets messy is when the inspection reveals a cascade of smaller issues that individually seem manageable but collectively make the buyer question the home’s long-term viability. A seller looking at a $2,000 repair request usually agrees. A seller looking at $30,000 in deferred maintenance across multiple systems often won’t. And a buyer facing those numbers often decides the risk isn’t worth it, even if they love the house.
Title Defects
A title search runs before closing to confirm the seller has clear legal authority to transfer ownership. Title companies look for unpaid tax liens, outstanding judgments against the owner, unrecorded easements, and boundary disputes with neighbors. Any of these can block the sale.
If the seller can’t clear the title issue before closing, the transaction stalls or dies. An old mortgage that was paid off but never properly released in public records, a contractor’s lien from a renovation project, or an heir with a potential claim to the property can all surface. Some defects are fixable with time and paperwork. Others require litigation, and the buyer’s timeline usually can’t accommodate the wait.
Home Sale Contingencies
Some buyers need to sell their current home before they can close on a new one. That requirement, written in as a home sale contingency, is one of the weaker positions a buyer can negotiate from because it depends on a third-party buyer showing up for the first home on time.
Sellers who accept these offers often insist on a kick-out clause. This lets the seller keep the home on the market and accept backup offers. If a new buyer comes along, the original buyer gets a short window, often 72 hours, to either drop the contingency and commit or step aside. If they can’t remove the contingency in time, the seller can legally end the contract and move forward with the new offer. In competitive markets, sellers increasingly reject home sale contingencies outright, which pushes buyers toward bridge financing or the risk of losing the property.
When the Seller Backs Out
Sellers cause their share of failed closings too. Cold feet, a better offer arriving after acceptance, a life change that eliminates the need to move, or frustration with repair requests can all lead a seller to try pulling out.
A signed purchase agreement is a binding contract, and backing out without a contractual basis is a breach. The buyer can sue for specific performance, a court order forcing the seller to complete the sale. Courts are often willing to grant this remedy in real estate cases because every property is considered unique, so money alone may not make the buyer whole. The buyer can also sue for monetary damages covering costs incurred in reliance on the deal: inspection fees, appraisal costs, temporary housing expenses, and similar losses.
In practice, most sellers who want out negotiate a release, sometimes paying the buyer’s out-of-pocket costs in exchange for a mutual cancellation. But a seller who refuses to close without legal justification is on the losing side of the leverage.
What Happens to Your Earnest Money
Earnest money, typically 1% to 3% of the purchase price, sits in an escrow account held by a neutral third party until closing. What happens to it when a deal dies depends on how you exited the contract.
If you backed out under a financing, inspection, or appraisal contingency within the contractual deadline, you’re entitled to a full refund. The escrow agent releases the funds once both parties sign a mutual release. If you defaulted without a valid contingency, the seller can claim your deposit as liquidated damages under most purchase agreements. The exact rules vary by state, and the contract language spells out how it works.
The ugly scenario is when both sides claim the money and neither will sign a release. The escrow agent can’t pick a winner. When the stalemate drags on, the agent may file an interpleader action, essentially a lawsuit asking a court to hold the money and let the buyer and seller fight over it. The escrow agent’s legal fees come directly out of the deposit, often $3,000 to $5,000 or more, before the remaining funds are deposited with the court. Both sides then need their own attorneys, and legal costs can quickly exceed the deposit itself. That prospect is usually enough to bring both parties back to a negotiated release.
The Risk of Waiving Contingencies
In hot markets, buyers sometimes waive inspection, financing, or appraisal contingencies to make their offer more attractive. It’s a calculated gamble, and the failure rate for those buyers looks nothing like the 5% national average when things go sideways.
Waiving the financing contingency means that if your loan falls through, you can’t exit the contract cleanly. You forfeit your earnest money and the seller can potentially sue for additional damages. Waiving the inspection contingency means you’re buying the house as-is; a $40,000 foundation problem discovered after closing is yours. Waiving the appraisal contingency means you’ve agreed to cover any gap between the appraised value and the purchase price out of pocket.
Buyers who waive contingencies and then can’t close face the worst outcomes: lost earnest money, potential legal liability, and wasted time and costs. If you’re considering waiving any contingency, confirm you have the financial reserves to absorb the worst-case scenario before you sign.