Why some real estate transactions don’t close escrow.

May 14,2024 | Posted By Flavia Brown in Real Estate

Reasons why real estate transactions fall through and don’t close escrow.

Commonly called a TFT (transaction fell through), it is a common occurrence and unskilled agents are partly to blame. Here are six reasons escrows don’t close:

Buyer’s financing: Buyers can get disqualified for a loan during the escrow period if interest rates increase, or by buying high-ticket items on credit, or by changing jobs. Buyer’s agents should tell their clients what to do and not to do during the escrow period. Buyer’s agents and seller’s agents should check with the lender every few days to see how the loan process is going.

Property investigation: After an offer is accepted and ratified, buyers have 17 calendar days to investigate the property (inspections, seller’s disclosures, reports, etc.), negotiate with sellers regarding needed repairs, remove all buyer contingencies, or cancel the contract. Unresolved issues like property defects, unpermitted additions and remodeling, zoning violations, and environmental concerns can cause contract cancellations. Agents on both sides are responsible for addressing these problems, but mostly it is the listing agent’s and seller’s legal duty to disclose these issues and any other items that may affect the value and desirability of the property.

Appraisal: If the property appraises for less than the purchase price, the buyer and seller will have to negotiate over who will pay the difference, or the asking price will have to be reduced. But first, the buyer’s agent should seek a second opinion (another appraisal) or challenge the appraisal with an accurate analysis of the comps.

Market condition changes: Interest rate increases and economic downturns can cause buyers to cancel. However, agents should advise their clients that market conditions can change quickly, and have their clients sign a standard form that explains market condition changes.

Contract deadlines are not met: Missed contingencies removal deadlines and other deadlines can contractually cancel the purchase agreement. However, before a cancellation process begins, the seller’s agent should present two documents to the buyer’s agent: “Buyer’s Notice to Perform” and “Request for Time Extension.”

Change of mind: Most often it is the buyer who gets cold feet or has another reason to cancel the contract. But sellers also could have a good reason to cancel. If there is no fraud or breach of contract, either the buyer or seller may cancel. Generally, it is easier for a buyer than a seller to cancel. The buyer doesn’t even have to give a reason if the request to cancel is presented to the seller before the buyer’s contingencies are removed. However, the seller must have a legal reason to cancel to avoid a costly breach of contract. Both agents should explain to their clients the “ins and outs” of canceling, and if necessary, refer them to a real estate attorney.
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Best regards,

Flavia Brown, Realtor® (18 years)
Real estate author
CalDRE #01729313
Realty One Group United
Hermosa Beach, CA
homesbyflavia@gmail.com
homesbyflavia.com
310-702-0293 (cell/text)

P.S. Would you like to be more real estate savvy? I recently finished writing a book that may be the most informative and helpful real estate book written in many years. For example, chapters 1-3 explain in detail every step in a real estate transaction for buyers and sellers. It is currently a Word document waiting to be professionally formatted and published. You may have a free e-edition. Click here: https://homesbyflavia.com/blog/real-estate/a-most-informative-real-estate-book-by-flavia

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