If you’ve ever purchased or sold a home, you’ve likely heard the term “fall out of escrow.” That is generally bad news for the home seller and buyer. However, it can be good news for other buyers who may be able to get the home at a lower price if the seller is more anxious to unload the property than ever – maybe because they need to relocate outside of Connecticut or have already purchased another home.
Unfortunately, there’s been an increase in homes falling out of escrow this year across the country. According to Redfin, it happened with a record 40,000 agreements this January. The real estate broker attributes it to the fact that it’s currently a seller’s market and overall economic anxiety.
Falling out of escrow (also known as an “escrow failure”) essentially means that the sale is canceled and the home goes back on the market. Typically, it occurs when either the buyer or seller fails to meet the contractual conditions they’re required to under the terms of the purchase and sale agreement before the scheduled closing date.
Key reasons that deals collapse
There are many moving parts in every residential real estate transaction. A lot can go wrong even after the agreement is signed by the buyer and seller. Sometimes, one side or the other simply gets “cold feet” or changes their mind. Many times, there are other issues – often linked to contingencies in the agreement.
Among the most common reasons why homes fall out of escrow are the following:
- The financing for the home falls through – This often occurs because the buyer’s financial situation has suddenly changed due to something like job loss or new debt
- Title issues – There may a lien or judgment on the title that the seller didn’t know about or disclose. If that can’t be resolved, the sale can fall through.
- The appraised value is different from the asking price – This requires the buyer and seller to agree on a price that more closely matches the home’s current value. They can’t always do that.
- The home inspection uncovers serious issues – One of the contingencies of the agreement is that the inspection doesn’t reveal such issues, but if an inspector finds one, it can be a deal-breaker, even if the seller agrees to fix it.
Many of these issues can be avoided if the seller does their due diligence before placing their home on the market. Buyers can also help protect themselves by getting experienced legal guidance early in the process – not just at closing, as generally required under Connecticut law. In the end, this can save time, money and stress.