Selling a house can be a frightening experience. Knowing how much to price your home at, deciding whether or not to repaint or replace carpets, and finding a real estate agent you trust can keep you on edge.
Once you’re ready to sell your home, there’s a limbo period where life can feel unsettled. Home showings can disrupt the daily flow of life, and you might constantly wonder whether you’re asking the right price for your home or not.
There’s a moment of elation when you finally find a buyer, but the limbo sets in again once the escrow period starts. Occasionally, a seller’s worst nightmare happens, and the sale will fall out of escrow—meaning something went wrong, and the sale couldn’t be completed.
Looking ahead and wondering what to do when your house falls out of escrow can shake sellers up. Knowing what to do when your house falls out of escrow can be just as challenging as getting your home on the market in the first place.
Reasons why a buyer might back out of a sale or why a contract won’t hold up can vary from region to region. In many areas, there are a lot of outs for buyers. For example, in the state of California, there are seventeen ways a deal can fall out of escrow.
The most important thing a seller can do when this happens is to learn more about the escrow process. Knowing what to do when your house falls out of escrow involves understanding what happens during the escrow period. If you can pinpoint exact reasons for why the sale failed, you can help prevent it from happening again.
The escrow period, which is the time from when you accept a buyer’s proposal and their earnest money until the sale closes, can be six to eight weeks of uncertainty. Changes in real estate law mean that applications for mortgage loans now take around 45 days to complete and be approved.
Although the seller will be living in uncertainty, there’s actually a lot going on behind the scenes.
Once the buyer and seller settle on a purchase agreement and the earnest money is placed in an escrow fund, the buyer will most likely order a home inspection. Someone will walk through the home to determine whether there is a need for serious repairs.
If the house and yard are in good condition and only minor repairs are needed, the buyer will probably proceed to the next point, which is filling out a mortgage application.
Depending on the type of loan, the mortgage application process might require the buyer to provide several different types of documents. There might be a need for some types of repairs or updates, such as adding egress windows, fire extinguishers and repainting or replacing worn siding.
If repairs are needed, the purchase agreement might need to be re-negotiated to determine whether the buyer or seller is responsible for paying for the repairs.
The lender will also order an appraisal. This also requires someone to walk through your home, but rather than looking for a list of items to repair, an appraiser will be studying the home to determine what its fair market value is.
During the walk-through, the appraiser will look at the property’s amenities. He or she will also pay attention to structural integrity and watch for signs of water damage, pest damage, a cracked foundation or a leaky roof.
The appraiser also compares your home to other homes that have sold in the area recently. A seller doesn’t have control over the real estate market, so if houses around yours are falling short on the appraisal end, yours might, too.
This is especially important to watch if there are a lot of foreclosures or short sales in your area.
The buyer will also need to get homeowner’s insurance. Insurance premiums can be higher for homes with some amenities such as a swimming pool or a wood-burning stove, and that might make a difference in whether buyers can afford the payments.
Most insurers suggest a deductible of at least $500, but if a buyer chooses a higher deductible, they can save a lot on their insurance (a $1000 deductible could save up to 25 percent). This could impact the buyer’s payments and perhaps whether or not they can get the loan they’re applying for.
There are other paperwork issues, too. There can’t be any liens on the title or bickering among family members who jointly own the property and can’t agree whether or not to sell it.
With all these factors playing into whether or not a deal will go through, it’s no wonder that the escrow period can put sellers on edge.
There are a few things a seller can do to help the buyer and lender push the deal through. Since the seller has no direct communication with the buyer in most instances, the seller will need to work with the real estate agent to make sure everything is falling into place.
The way a seller proceeds to sell a house when the home has already fallen out of escrow depends on the reasons the sale failed. Knowing what to do when your house falls out of escrow might require thinking out of the box.
Older homes are falling out of escrow much more common now than in the past. Four out of every 100 sales are failing now. The fail rate nearly doubled from 2015 to 2016, and the highest fail rate (at 5.2 percent) happens for homes built before 1970.
This could be because older homes need more repairs and updates. An older home might need serious renovation to get a decent appraisal rate or to pass a home inspection. Knowing what to do when your house falls out of escrow requires sellers to really study the appraisal and home inspection reports.
At this point, thinking about what to do when your house falls out of escrow means determining whether to make the necessary repairs or to try to sell the home as-is.
Deciding what to do when your house falls out of escrow might mean investing more in your home before you sell it. Making extensive repairs when you’re trying to sell a home can be too costly to be feasible, but there are a few things you can do to help the home pass inspection or meet appraisal.
Thinking ahead about what to do when your house falls out of escrow (just in case it happens again) might help you brainstorm other repairs you might need to make. Paying attention to the repair list that the home inspection suggested is a good place to start.
If the home sale failed because it didn’t make appraisal, it might be because the comparables in your neighborhood are coming in too low. At this point, even if you renovate and pour money into your home, it will have difficulty appraising well enough to sell at the price you’d like to sell at.
Knowing what to do when your house falls out of escrow requires sellers to take the information from the appraisal from the failed sale into account. When you re-list your home, put it at or just below the appraisal price to make it easier for potential buyers to get mortgage loans.
Sometimes considering the people who are interested in your home can help you know what to do when your home falls out of escrow. If you’ve had your home on the market and young families are looking for a first home, they might not qualify for a mortgage that meets the purchase agreement.
This is especially true if you own an older home and it failed the home inspection or appraised too low.
Maybe you need to sell to someone who can flip homes or someone who owns rental property. While you probably won’t get as much out of the home as you would selling to a family who adores it, in most cases, you can at least walk away without the mortgage payments hanging over your head.
If you don’t have to sell to get out from under hefty mortgage payments, it might be worth hanging on to your home for a little while longer. Fix it up as time and money allow.
The good thing about this situation is that you won’t be in a rush, and you can get everything the way you want it before you try to sell again. Watch the market trends.
When the real estate market shifts in your favor, re-list it with an agent who knows it failed escrow before and can help prevent it from happening again. At the very least, hiring an experienced agent who knows what to do when your house falls out of escrow can give you peace of mind.