With declining confidence and volatile underwriting, some deals never reach the closing table.

When a sales associate in James Nemetz's office listed a home in a high-end Boston suburb for $1.8 million—a bargain, even in today's market—it didn't take long for buyers to take notice. But just as quickly as two offers came in for the home, both faded away. The reason: The buyers had cold feet.

"One buyer said, 'You know what, we just don't feel like moving forward with anything just now,'" says Nemetz, manager of a Hammond Real Estate branch office in Newton, Mass, with more than 100 sales associates. The other one quibbled about a minor issue that came up in the home inspection and wanted to renegotiate the entire offer, something the listing agent sensed was an excuse for foot-dragging.

The speed at which buyers are ready to back out of a deal is evidenced in the gap between two of NAR's closely followed economic indicators, pending home sales and existing-home sales. The Pending Home Sales Index is based on signed real estate contracts, while existing-home sales are based on closed transactions. Between March and October of 2008, notwithstanding month-to-month gains and losses, the Pending Home Sales Index climbed eight points while existing-home sales stayed essentially flat.

What's more, preliminary NATIONAL ASSOCIATION OF REALTORS® data for November 2008 shows a widening gap between the two indicators, with the Pending Home Sales Index climbing approximately 10 points while existing-home sales for falling six points, creating a spread of some 16 points.

Because the numbers are preliminary, they're subject to change over the next several months as more data becomes available. But real estate professionals around the country say the gap is real. "We're seeing far more deals falling out at the 11th hour," says Jim Cameron, manager of a First Team Real Estate office in Anaheim Hills, Calif., an upscale community in Orange County.

Brokers cite a number of reasons for the trend. Not only are borrowers finding it harder to get a loan, but even those who are prequalified can find the deal scuttled because of sudden changes in lenders' underwriting standards. "Things are changing on a weekly and sometimes daily basis," says Cameron, referring mainly to debt-to-income ratios and FICO scores. A buyer who's qualified one day with a FICO score of 680 could be pushed out the next day when the lender starts requiring a score of 720, he says.

Brokers say it has never been more crucial for practitioners to make sure buyers have a prequalification letter from a direct lender whom you trust.

Nancy Ritchie, ABR®, GRI, a veteran sales associate with Long & Foster Real Estate in Sterling, Va., says she's managed to avoid last-minute snags by doing just that. "I'm just vetting my customers really closely," she says.

Another major factor that brokers attribute to the gap between pending and actual sales: the complicated nature of the transactions that comprise the bulk of business today. In some markets, short sales make up anywhere from half to 90 percent of the business, and these deals are notorious for not closing or for taking a very long time to get there. "They have a low rate of success," says Lance Churchill, a short sales specialist who works in two markets, San Diego and Boise, Idaho.

Also, compared with two years ago, a larger percentage of closings involve FHA-insured financing. Although processing has improved greatly over previous years, these loans can still take a long time and closings sometimes won't be reflected for several months. "Don't even think about writing an FHA loan on a 30-day closing," says Cameron.

Practitioners say that once the economy improves, the ingredients will be in place for the gap between pending and closed sales to narrow. Short sales as a share of the market will shrink and consumer confidence—the underlying element of cold feet—will rise. "People want to see the market settle down," Nemetz says.

Lending standards are changing "on a weekly and sometimes daily" basis, says Jim Cameron, manager of a First Team Real Estate office in Anaheim Hills, Calif., an upscale community in Orange County.

The pending home sales index for a given month should predict existing-home sales closed three months later. But the spread between the two measures is widening as deals increasingly collapse or take longer to close.

What borrowers need

A bill that would use billions of dollars from the federal government to help home owners modify their loans and avoid foreclosure is the right approach at the right time, NAR President Charles McMillan, left, told the House Financial Services Committee in January. McMillan praised H.R. 384, the TARP Reform and Accountability Act, authored by the committee chair Barney Frank (D-Mass.), right, because it makes federal resources available from last year’s massive economic rescue effort to help troubled borrowers and encourages loan modifications by reducing the likelihood of investors ­suing servicers who change the terms of shaky mortgages. The bill has passed the House and was still under consideration in the Senate in early February.