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Pending Your Knowledge

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Posted On: 10/23/2013

Question:

I frequently see news reports concerning “pending” home sales. What are they, and are they significant?

Answer:

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Pending home sales are a measure of real estate activity released monthly by the National Association of Realtors. “A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing,” according to NAR.

The idea is that if pending agreements are up or down, we can have some idea of where closed sales may be heading in a month or two. In other words, it’s a leading indicator, a broad clue regarding general market trends.

However, while pending offers are “usually” finalized, they don't always lead to a sale. Some percentage of these sales falls through and never makes it to closing.

Why does this happen?

Virtually all real estate agreements today are contingent arrangements. They’re dependent on such things as a satisfactory home inspection, the ability to get financing or other buyer requirements. So, in some cases, a pending agreement never becomes a finalized and firm contract because a contingency has not been met.

This is especially the case with financing. For instance, an appraisal may reflect a fair market value that is less than the sale price or, when re-checking credit reports just before closing, the lender may find new debt that pushes the borrower from qualified to unqualified.

In some cases, it may not be the worst thing in the world if a pending offer falls through. For instance, the prospective buyer might then make an offer on another property and the seller may find another purchaser.

While sale statistics are hard numbers, pending sale reports are best seen as approximations, a hint of what's happening in the marketplace. Measuring today's pending sales with those from a year ago can be useful and meaningful – provided one understands that pending sales do not always close.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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