Role Out the Red Carpet: 3 Tripping Hazards to a Perfect Escrow

Jane Gray
Jane Gray
Published on August 3, 2017
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Break out the champagne!  Time to celebrate.  You got an accepted offer!  All that cleaning, painting, repairing, decluttering, keeping your home ready to show at a moment’s notice was tiring but it all paid off!  Woohoo!  Congratulations!

Your focus shifts and you’re home free (pun intended).  What could go wrong now?

As it turns out, the marketing and the selling part of your home is simply the second act in a 3-part play.  (Act 1 was your prep work).  The last Act is the climax (or crisis) of your play.  Did you know that roughly 15-20% of escrows don’t get to the final curtain?  Yep.

Escrow “Hyperspace”

Hans Solo: “We’ll be safe once we make the jump to hyperspace…this is where the fun begins

There’s lots of papers flying as the curtain opens on Act 3.   New cast members:  title, lender, underwriter, and TC seem to fly in from all directions.  Buckle up.  They all want something and they wanted it yesterday.  The delicate dance relies on fulfilling all parts of the contract to satisfy both parties and ensure that Buyers and Sellers are protected, but all parties are also held accountable.  Here are the Top 3 areas that can bring the curtain crashing down on escrow versus a happy ending with move-out, money-in-the-bank climax.

Inspections and Appraisals

Dan and Julie were excited to be upsizing and getting into a bigger home to comfortably fit their growing family.  They were happy to know that their home would be purchased by a young family starting out with a small baby.  It seemed like only yesterday when there were only three of them, too.

The Young’s were buying their first home with an FHA loan.  They ate more than a few peanut butter sandwiches as they budgeted and saved for the down payment and closing costs to go from renter to home owner with the arrival of their first child.  The home they fell in love with was also most loved by 3 other couples.  In a multiple offer situation, their offer was the victorious one. During the inspection, their Inspector found moisture in the attic which indicated some potential leaks in the roof.  No problem.  They asked for it to be repaired along with some other urgent items.  Then the appraisal came back $7k under their offer price even though every offer was over asking.  The Sellers were disappointed to find that the roof certification would cost them several thousand dollars because of additional dry rot that needed remediation, but the sticking point was that the Young’s couldn’t make up the difference between the appraised value and their offer price.  Unable to come to a mutual agreement, they agreed to cancel their contract.  Back on the Market!

How an Experienced Agent will mitigate the risks:    Pre-inspections are warranted on older houses (Listing Agents).  They spend time doing the comps (Listing and Selling Agents) and have a very good idea of where an appraisal will come in.  They will advise their clients and ensure that they have a way to make up the difference (Selling Agents).  They have a plan!

Financing

Joanne was buying her first home on her own after being married for years.  It was a great 3 bedroom 2 bath home with a view of the Sacramento Valley perched on the bluffs in Springfield’s active adult community.  She had two kids with accompanying parent plus loans for their private university education.  Despite the fact that her lender had issued a pre-approval with income verification, Underwriting determined that her work as a consultant hadn’t produced the full income they initially thought because her 1040’s showed a lot of write offs.  The Mello Roos and the HOA on the house ended up putting her in an impossible debt to income level with no way to qualify for the home she had her heart set on.  Before the loan contingency period was up, she backed out of the contract.

How an Experienced Agent will mitigate the risks:  The Listing Agent will vet the buyer with the Buyer’s Lender asking probing questions about the work done to issue a Pre-Approval and will continually check in with the Lender to ensure that Underwriting is working to complete their deep dive assessment as soon as possible.  The Buyer Agent (selling side) will ensure the same with underwriting and that it’s completed before the contingency period for the loan is up so that the Buyer doesn’t lose his/her Earnest Money Deposit (EMD).  An experienced Buyer’s Agent will also spend time pre-qualifying and determining if there might be red flags before they get into contract.

Contingent Offer

Nadine and Andre were excited to move into the school district where he was the principal and she was a teacher.  Their kids played soccer at the park down the street.  This house was going to be so perfect for their growing family.  When they put their offer in, it was contingent on selling their home in the Bird Tract in Fair Oaks, an older neighborhood.  The home doesn’t sell by the contingency removal date and the Listing Agent issues a Notice to Perform.  Buyers can’t get their home into contract.  Contract is cancelled.  This causes the Sellers to lose the property they are buying too.  A domino effect with disappointment all around.

How an Experienced Agent will mitigate the risks:  The listing agent must do their due diligence:  call agent listing the buyer’s house, run the comps, keep in contact with the agent for progress, offers, and competence. (That’s right:  there are a lot of inexperienced agents in this business who don’t return calls or don’t seem to do all the necessary actions to get a home to sell such as marketing and pricing properly).  Buyers agent (if different) needs to communicate with the listing agent.

The actions of the experienced agent aim to minimize the risk, communicating frequently with the different parties in the transaction and sometimes negotiating a way out of a mired situation. Communication and follow up and follow through do matter!  Nerves get frayed and good agents often find themselves mediating common ground between each side.

In the end, the probability is high that your escrow is going to close so prepare to pop the cork at the final curtain.  Just make sure that you have the right agent in the leading role who does all the hard work behind the scenes to make it happen.  Experience is priceless.

CONGRATULATIONS!

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Role Out the Red Carpet: 3 Tripping Hazards to a Perfect Escrow
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