As a homeowner, you want to get the most out of your investment. Whether you're planning to sell your home soon or just want to increase its value over time, there are several steps you can take to
Top Reasons That Escrows Fail
Dated: May 14 2022
Views: 252
If you follow the housing market closely, you will regularly see listings that are ”back on the market” sometimes with the wording “no fault of the seller”. What does this mean and why does it happen?
When buying or selling a home there is a period of time between an accepted Purchase Agreement and the completion of the sale. This time period is typically around 30 days and is commonly referred to as the escrow period. There are a number of things that happen during this time that may cause a sale to fail and the property to be placed back on the market.
Findings from Buyer Investigation
One of the most important steps in the process for a buyer is to gain a thorough understanding of the property that they are buying. This is done by hiring experts to conduct inspections and also by reviewing reports and disclosures about the property that are provided by the seller, the title company and (if applicable) the homeowners association. When there are unexpected findings from these reports there is usually an option to handle this. Common solutions are the seller agreeing to make repairs, the seller providing a credit to the buyer or lowering the sales price. This is a negotiation and sometimes a mutual agreement cannot be reached and this can lead to the buyer canceling the contract.
Appraisal Shortfall
If the buyer is using a loan to buy the property, the mortgage lender will most likely require an appraisal. This is when a neutral third party will come and look at the property and produce a report giving an expert opinion as to the current value. If this report states that the home is worth less than the agreed sales price this will create a problem with the loan. Common solutions involve the buyer making a larger down payment or the seller reducing the price. If these options are not possible or agreeable then it will most likely result in cancellation of the contract.
Failed Loan Application
When the buyer submits an offer and they are planning to use a loan they are usually pre approved. That means that a lender has given them initial approval but will need to verify some details before they will make the loan in a process called underwriting. If anything unexpected happens during underwriting, such as finding debts or previous delinquencies that were not disclosed or a change in employment, it can cause the loan process to fail. If the buyer cannot arrange an alternative source of funding, they will be forced to cancel.
Failure of another Contingent Sale
Sometimes the buyer needs to sell a home or the seller needs to buy a home in order to complete the transaction. If this is the case and one of those other sales fails (for any of the reasons listed here) then it can cause the transaction to fail.
Non-performance
If the buyer or seller fails to take actions specified in the purchase agreement in the specified timelines this can give cause to cancel the transaction. For example, if the buyer does not remove their investigation contingency at the agreed upon time, the seller can give them notice to do so and if it is still not done, the seller may cancel.
Other Reasons
Buying and selling a home is a huge life decision and it can be derailed by a vast number of external factors such as health issues, bereavement, something happening to the property (fire/flood/etc).
Problems during escrow are not uncommon and it often comes down to the agents’ abilities to problem solve and offer up solutions for the buyer and seller. If a mutual agreement is not reached then the escrow will usually be canceled and result in inconvenience and expense for both the buyer and seller. This can be avoided by having systems and strategies to minimize the likelihood of problems ahead of time. Give us a call on (530) 553-8224 and we would be happy to discuss how we reduce the chances of something derailing your sale or purchase.
Nick & Brittney Allison
We are a Husband-Wife real estate team located in Chico and serving the wider Butte County area. As professional full-service Realtors, we are able to assist buyers, sellers and investors at all stage....
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