Why Do Real Estate Deals Fall Out of Escrow?

A big fear for home sellers and real estate agents is having the current home you have in escrow with a buyer fall out of escrow and the deal is off. Now, you must go back on the market knowing that the new buyers are wondering what happened to the last buyer, what is wrong with the house? I always want a smooth real estate transaction, something that looks like this.

I prepare the house for showing, take professional awesome pictures, attract lots of buyers with many showings, find the buyer, and open escrow. Then we go through escrow successfully and in thirty days we close and the house is sold! Sounds great but that is not always what happens. There are ways to ensure it does not happen often.

The problem with a house not completing escrow successfully is that is it not always as easy as you might think. Escrow can bring may road blocks during the process that can either be worked out with proper and smart negotiating between the seller and buyer or it could mean you can’t work out the differences or issues and the buyer walks. We never want the buyer to cancel but we also don`t want the seller to provide too many concession `s that largely affect our contract price. Selling a house can be a stressful event but not selling can cause more issues for you then just stress.

So, why would a home fall out of escrow and what is escrow? Escrow is an independent “stakeholder” account and is the vehicle by which the interests of all parties to the transaction are protected. The escrow is created (opened) after you execute the contract for sale of your home and it becomes the depository for all monies, instructions, and documents pertaining to the sale.

How does the escrow process work? The escrow officer takes instructions based on the terms of the Purchase Agreement and the lender’s requirements. The escrow officer hold inspection reports, bills for work performed as required by the purchase agreement, Real Estate agent instruction’s from terms negotiated during escrow, or lender instructions during escrow. Other elements of the escrow include hazard and title insurance, payoffs of all liens, proration of trash sewer, HOA, taxes, recording documents, signing of documents, payment disbursements, and grant deed from the seller to you. Escrow cannot be completed until these items have been satisfied and all parties have signed escrow documents. It is the transfer legally of the property of one person to another.

How do I open escrow? Either your real estate agent or the buyers agent will open escrow with the chosen title company from the buyer or buyer’s agent. As soon as you open escrow you the buyer will need to submit your earnest money into the title escrow companies account. The length of escrow is determined on the purchase agreement, it can be as short as days if a cash deal or if it’s a financed deal up to 30 to 45 days.

Now, you should have a much better understanding what is escrow and how it works. You might start to see where and how escrow can create challenges for either the seller or buyer. Let`s look closer at escrow and see were the big issues can be and how it can effect your sale. The main part of escrow for the seller and buyer is the execution of the Purchase Agreement. This agreement has contingents that must be completed in certain amount of days by the buyer, per the agreement.

The first is the Due Diligence period, this is were the buyer will hire a home inspector or other inspectors to inspect the house from foundation to roof. The second contingent period is the appraisal contingent, this is were the buyer pays for an appraiser to come to the house and complete a home valuation on the property. The third contingent period is the loan contingent, this is were the lender locks in your loan for the purchase of the property. The final contingent is the Homeowners Association (HOA), the buyer will get from the seller the HOA rules and regulations of the community. All of these contingents can cause the buyer to cancel if they do not approve of any of the contingents. As you can see there is plenty of areas that can cause issues to the seller and buyer. So how do you get through escrow as smooth as you can?

The best way to ensure a smooth escrow process is to have an agent who understands escrow, understands where problems can arise before they do, and has prepared the seller and house to a successfully completion of escrow before you even start it. My Client Concierge Service starts to address potential issues while we are preparing the house. Spend the time fixing, replacing, or repairing items in the house that a home inspector will find and put on their report. Do a title search on the property to make sure there are no hidden unknown problems with the title of the the property. Call the HOA to get any and all information within the community, monthly fees, what it includes or covers, any litigation on the property or community. Check the neighborhood closely for the recent sale activity and other sources for neighborhood and sale data, know your numbers! Don`t let the appraiser shock or disappoint your seller because you did not do your homework on the sale price.

If you create a plan when working to sell a home and do your thorough homework before you list the property, your chances of a smooth and successful transaction increase dramatically. I call escrow “crazy land” because its a time when a lot of other third-party people get involved and it can make your seller a bit uneasy but with the correct preparation before you list it will give your seller so much more peace of mind when things get a little bumpy.