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Escrow Failures: Why Do Homes Fall Out of Escrow?

5 Escrow Failures and How to Avoid Them

Not every sales transaction goes as smoothly as one would wish, especially those that involve big value purchases such as homes. Escrow failures are when a home falls out of escrow. They are not uncommon, but they can be easily avoided! 

Real estate agents often stress about issues that may arise throughout the selling process because there are many things that could go wrong. If anything goes wrong, there is a possibility the sale falls through, and they lose their commission. This is why it is important to be prepared for the closing process of a house.

homes fall out of escrow

What if we told you there are many ways to avoid escrow failures where your home falls out of escrow?

Luckily, we’re breaking down 5 escrow failures and how to avoid them to allow for a smooth sales transaction.

5 Reasons Houses Fall Out of Escrow

There are multiple reasons houses can fall out of escrow, but what exactly does falling out of escrow mean?

When a property falls out of escrow, it means that something went wrong with the terms of the purchase contract or some other aspect of the transaction. Whatever the reason is, if the sale of the property is void, the house “falls out” of escrow.

One important thing to keep in mind is that in real estate, when a property falls out of escrow, it is usually not the escrow officer’s fault. An escrow officer acts as a middleman for the buyer and seller and works with the real estate agent to ensure a smooth selling process.

Now, let’s explore the 5 reasons that cause escrow failures.

1. The Buyer Cannot Finance the Property Anymore

When a buyer contacts a lender to finance a property purchase, they go through the process of getting pre-approved. The name says it all: you are getting PRE-approved.

Situations can change during the weeks of the selling process once the property is on escrow. The buyer might find themselves without a job, acquired new debt, or do something that negatively affects their credit score. This leads the lender to believe they won’t be able to afford the property anymore, and will more likely lose their financing.

cannot finance property

2. Home Inspection Gone Wrong!

Mold, termites, rusty foundation? These are all common problems in many houses, and home owners try to dodge the bullet by putting the house on the market.

Home inspections are and should always be a crucial part of the real estate selling process. Otherwise, you might spend all your lifetime savings and acquire debt to buy a moldy, termite-infested home with the roof falling off.

Inspections serve the purpose of finding big issues like the ones mentioned above, but sometimes they may reveal minor issues as well. When an issue is found, the buyer can require the seller to repair the damages or reduce the price. 

3. The Appraisal Value Does Not Match

A lender is usually in charge of appraising the property to ensure the real value of the house matches the asking price.

Sometimes, the appraisal does not favor the seller. If the appraisal value is under the original purchase price, the buyer will have two options: to come up with the difference in value or negotiate the price. 

negotiation on a house

If both parties fail to reach an agreement on the purchase price, it is likely the house will fall out of escrow.

4. Issues with the Property Title

Before the transaction is closed, the lender requires a third-party company to review the title. They look for liens or judgements against the property. For instance, there might be claims by the IRS or any other party against the property.

When reviewing, they also look for other possible title-owners that might refute to sign off the title of the house.

These issues must be resolved before the process continues. If resolving the issues takes too long, the buyer might back down and the house will fall out of escrow.

5. Buyers Back Down

Going through the process of buying a home is a big step in an individual’s or couple’s lives. It is probably one of the biggest purchases they will ever do.

This makes people feel insecure about the home buying  process. If any party wants to back down from buying , they need to carefully look at the terms of the contract. 

In the contract, there might be contingencies to backing down from an offer or from buying the home. As a buyer, you might lose money if you back down from the contract without a real reason. Be sure of what you want before you begin!

The great news is, all of these possible issues can be easily avoided! New Venture Escrow’s online platform, Venture Trac 4.0 app, centralizes all parties involved outside of the buyer, seller, and real estate agent.

With the app, every party has access to all information pertaining to the transaction. If there is an issue at one point, it can easily be spotted by any party and resolved as fast as possible.

Additionally, there are things parties can do before they enter the selling process. Continue to read about things to do to avoid escrow failures.

How to Avoid Escrow Failures

After you read the reasons for why properties fall out of escrow, you probably noticed many of those issues could be resolved even before a seller puts their house on the market.

Here are some things to do before you list your home for sale.

how to avoid escrow failures

Ultimately, sellers want to team up with a real estate agent that will aid them through the whole process. As a real estate agent, you would get incredible value by entering a partnership with an escrow service provider such as New Venture Escrow.

With New Venture Escrow, you will find a real partnership beyond the selling of properties.

Ready for a Partnership?

Are you a real estate agent looking for a real partnership with an escrow company?

Look no more! Go into our website and contact us to learn how we can prevent properties from falling out of escrow and more!

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