WHY ESCROWS FALL OUT
Buyer's Remorse -
Buyers get cold feet. In California, standard contracts give buyers 17 days to do inspections. During this time, buyers can cancel a contract for any reason, but the most common is fear of buying a home. During this time period, buyers get their earnest money deposit back for any reason upon cancellation.
To the untrained eye, many homes look the same: four walls, a floor and a roof. But to a home inspector, every little crack in the wall and every spot on the ceiling could spell trouble chimney, sewer line and roof systems are three systems that an average buyer can't reasonably inspect without professional assistance.
Once a home inspector points out problems in a home, buyers tend to panic. All homes have problems, even new homes. Sometimes buyers demand that sellers replace worn appliances or fix pre-existing conditions that make a buyer uncomfortable. Buyers also can ask for a credit from the seller as compensation. If the seller refuses to do either of those options, then the pending sale cancels and the home goes back on the market.
Most home buyers take out a mortgage. To protect the lender's position, the lender will ask a buyer to pay for an appraisal. If the appraisal comes in less than the sales price you may have a big problem.
Here are the options:
He buyer can pay the difference in cash or supply the underwriter with comparable sales supporting the sales price, hoping to change the appraised value. The seller can reduce the price or the seller can carry back a small second mortgage covering the difference that the buyer pays back over a couple of years.
If the parties cannot agree to work out one of these options, the pending sale will fall apart.
Mortgage Loan Rejection
There are many reasons a loan can be rejected. Until the public records are searched by a title company or lawyer, buyers might not have knowledge of liens or judgments filed against them. Unless these liens are removed, a lender will not lend, and the buyer's loan can be denied.
Buyers who don't know any better sometimes increase their debt ratios by financing large purchases while waiting for their mortgage loan to close. Taking out a loan for a new car or financing the purchase of furniture can make a buyer ineligible for a mortgage loan.
Contingent on Buyer's Home Sale
Buyers can lose a home sale if the contract is contingent upon selling the buyer's home and that home has not sold in the time specified. Few buyers can afford to own two residences at the same time by making double mortgage payments.
Depending on the contingency agreement verbiage, sellers might also retain the right to cancel on a contingent buyer cancelling the contract if another buyer wants to buy the home without a contingency.
Have additional questions about this topic or need real estate advice? Even if you are not in the market to buy or sell, I'm here to help.