You’ve been working with a nice young couple for months, helping them plan their dream home. They’ve chosen custom cabinets, concrete counters, hardwood flooring, and ugly green walls throughout. But that’s fine. It’s their house, and they’re going to love it.

Mike Kalis, CEO,

Once you break ground, they check on your progress every weekend, and they’re constantly asking you tons of pesky questions. But, once again, it’s their dream house. They’re going to love it, and it’s going to be worth it to you in the end.

But then, the unthinkable happens: The young couple gets cold feet and cancels at the last minute. After six months of hard work on a $400,000 home, you end up not getting paid.

Now, you’re stuck with a house that has custom cabinets, pricey counter tops, and and a really custom hardwood floor throughout. Reselling this beast isn’t going to be easy, and until you find a buyer, you’re carrying loads of unexpected costs — interest, utilities, taxes, and more. Chances are that you’ll end up lowering the price to push your immediate inventory and potentially lose money on the project.

This situation stinks, and believe it or not, it happens far more often than it needs to. In my experience, one in six home sales are canceled by the original buyer prior to making it to closing.

Most Cancellations Are Avoidable
I’d venture to say that at least 95% of cancellations are avoidable, but first let’s look at the 5% that aren’t. There’s simply nothing you can do about unforeseen circumstances like unexpected job changes or death. Cancellations for these reasons are truly unavoidable.

But when it comes to reasons like indecision, lost financing, or a client’s inability to sell the home he or she currently lives in, you can take measures to protect yourself.

Here are five ways to prevent last-minute cancellations:

1. Get a partner commitment. Financing should never be the reason you lose a deal. In the months leading up to your close date, you can avoid this fate by getting a commitment from all of your partners — the buyer, the title company, and the mortgage lender — that holds them accountable to a firm deadline and charges a late fee to the lender or title company for each day the home doesn’t close.

This process becomes infinitely easier if you create relationships with local banks and lenders who are known for being willing to wait several months to close a transaction. The big guys do this in-house, but if you’re not that big yet, you can still get strong partnerships and hold your partners accountable to close on time.

2. Avoid home-to-sell contingencies. Don’t write a contract that’s contingent on the sale of a prior home. Just don’t do it. If your clients aren’t confident about selling their old home, why should you be? Instead, offer a guaranteed sales program so the buyers know the bottom-line price they’re walking away from. Or offer them a guaranteed lease so they can keep moving forward while they sell their old home. Contingencies aren’t really a sold home. Make the deal a deal.

3. Require hard cash for customization. Too often, buyers will put down a small deposit of earnest money and then ask for the moon: custom flooring and cabinets, steam showers, and over-the-top tech features. Protect your investment by requiring full payment for all customization. When clients have already ponied up for their custom options — or at least covered half of the cost — they’ll be much more reluctant to walk away.

4. Stand behind your contract. When it comes time to sign the contract, be sure to send a clear message to your clients. Tell them that if they break the contract, they’ll lose whatever cash they put down and potentially still be liable for the entire cost of the home. Then, if they happen to get cold feet toward the end of the process, you can always remind them of the frank conversation you had several months back.

5. Write a prescription for buyer’s remorse. Buyer’s remorse is a simple fact of life. A home is a major investment, so it’s only natural for your clients to feel nervous about taking the plunge — especially if it’s their first one.

Here’s what I do: I label a box of breath mints with the words “Remorse Pills” and hand it to all of my clients right after they sign a contract. I tell them to take two pills every time they start second-guessing themselves and remember how excited and happy they felt on the day they purchased the home. We talk upfront about how remorse will happen, that it’s normal, and that it happens to everyone. This always produces a few laughs, eases the tension a bit, and helps them realize that buyer's remorse is to be expected.

Last-minute cancellations are no joke; they cost builders billions of dollars every year. With some preparation, however, you can protect yourself against the avoidable ones. If you arm yourself with a firm contract, solid financial relationships, and a dose of lightheartedness, you’ll never be stuck with lime green walls again.