“Derailed” , “Gone South”, “Fell Out”, “Crashed and Burned” – there are lots of ways to describe a home sale that falls apart before it gets to the finish line. I am seeing an increase in deals that don’t make it to the closing table. Buyers and Sellers can become frustrated by investments of time, money and emotion in a process that doesn’t result in a win and can put them weeks behind in achieving their goals. There are things both buyers and sellers can do to keep a sale on track and avoid the dreaded “Fall Out Of Escrow”.
Jim and Jenny spent 8 months looking for a home for their family. When they finally walked into an adorable historic property restored and updated in all the right places, they knew THAT was the place they would raise their 2 children and one on the way. And when their offer was accepted by the sellers the whole family literally jumped for joy! They were READY! Pre-qualified by their lender, home inspector lined up and paid, appraisal paid for, all hoops jumped through to get those keys in hand. And then one week prior to getting the keys, everything comes to a screeching halt.
In their excitement, and against the advice of their lender and Realtor, they opened a credit account with a furniture store. After all, they now had a whole home to furnish. The “no payments for 18 months” account they opened couldn’t possibly impact the closing just 6 days away. Unfortunately the underwriters of their mortgage don’t quite see it that way. They see that the carefully calculated debt to income ratio has shifted. They are no longer qualified for financing their dream home. The deal falls apart. This happens. More than you think.
How can buyers avoid the dreaded “fall out of escrow”?
- Be upfront and honest with your lender
- Make sure you’re current on tax filings and obligations
- Make thoughtful, not emotional or panicked decisions about a home
- Maintain the same job and income through close of escrow
- Don’t make any major purchases or take on new debt prior to closing
- Make no major payments on debt without your lenders blessing
- Understand the inspection period and how to request repairs
- Get homeowners insurance
I like to describe the escrow period to buyers as a time during which you don’t make any financial decisions without collaborating with your lender.
Paul needed a quick sale of his condo to accept a position back east starting in two weeks. He happened to know of several units nearby that sold within about a month of listing. Those properties sold for a price that would net him enough to purchase a home in Massachusetts. In fact, he and his wife have a contingency offer accepted on a cute little Cape Cod only 20 minutes from his new job. When disclosing the condition of his home on the required form prior to listing, he struggled with whether or not he should disclose some defects to the unit that might slow down finding a buyer. He decided that he would “forget” to disclose some deferred maintenance and a few items that “probably wouldn’t get caught by a home inspector”.
After 42 days on market, he finally accepts an offer from a buyer who can close quickly. On day 10 of the escrow period, he is delivered a cancelation notice from the buyer due to some serious inspection issues. Now, he’s back to square one in selling his home AND he now has no excuse for not disclosing the items that he has now been informed about.
How can sellers avoid the dreaded “fall out of escrow”?
- Disclose, disclose, disclose
- Price the home according to its condition. It’s not impossible to sell a home in poor condition if it’s priced accordingly
- Confirm all debts against your home (don’t forget that second mortgage!).
- Have your Realtor open escrow on your home so that a lien search can turn up any title issues that can derail a sale
- Check and double check all HOA related issues. Confirm the transfer, resale and other fees associated with a sale, and any assessments, liens or fines in place.
- Expect to make some repairs requested by the buyer
- Maintain the home in good condition until close of escrow
Keeping a home sale on track and getting it to the finish line is not difficult if both buyer and seller follow a policy of honesty and listen to the advice of their Realtor/Lender team.