• Cole Mizak

Why Do Some Properties Fall Out of Escrow?

When buyers and sellers open escrow everyone is always hoping for a smooth transaction. There are a number of contingencies during the due diligence period that give the buyer an opportunity to learn more about the property. Inspection reports, the cost of homeowners insurance, appraisals, loan approval, review of the preliminary title report and homeowners association documents are all important aspects of the process.

Every step of the way there is information to be analyzed and judgments to be made as to whether to proceed with the escrow process, do further investigation of a particular issue or potential future construction project or back out of the transaction. Cautious buyers use the due diligence period to learn as much as they can and allay any concerns they may have about the property they are hoping to purchase.

While everyone uses their best efforts to nurture a transaction in escrow towards a successful closing, sometimes issues arise that cause the deal to fall out of escrow. This can happen for many reasons and in a sellers’ market it tends to happen a bit less often than in a buyers’ market.

With minimal inventory currently available, buyers have been less particular the past 3 years when it comes to making discretionary purchases of vacation homes and sellers have become increasingly finicky on the types of offers they accept. As a result, sellers need to be satisfied with every aspect of the proposed contract terms or they will simply wait for another offer to come along and buyers have less power to renegotiate contract terms should they make a discovery during the escrow process. Overall, the Nevada contract is still very buyer friendly and buyers still can use disapproval of one of the contingencies as a reason to cancel the transaction risking the chance that they will not find another home to buy that meets their desired criteria for some time. Simply saying that you think the cost of homeowners insurance on the property is too high is enough of a reason for a buyer to cancel the escrow in Nevada.

Sometimes inspection reports come back with unforeseen repairs that will result in costs well in excess of the amount budgeted in the purchase contract. In that case, the parties may either renegotiate or the buyer might simply choose to walk away from the deal. In Nevada, even if the seller offers to repair everything noted in the inspection reports it’s still not good enough. The buyer can simply disapprove of the inspection reports, cancel the escrow and get their earnest money deposit back minus the cost of inspections.

The loan approval process has become much lengthier in the recent years. A buyer can have enough down payment and good credit, but if the condo complex in which they wish to make a purchase is involved with litigation or has a high percentage of absentee owners, the lender might not approve the loan.

And on rare occasions buyers simply change their mind that they don't want a property and release the liquidated damages specified in the purchase agreement to the seller. For all of these reasons and many more, a transaction can fall out of escrow even if everyone involved has worked hard to make it succeed.




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Mizak Realty Affiliates LTD.

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Incline Village, NV 89451

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