Let's Ask Katie - November 2024

Let’s Ask Katie

Expert Advice for all your Real Estate questions from Katie Machoskie

Dear Katie,

We are about to interview agents and our friends told us some horror stories about the last house they sold where three different buyers canceled their escrows. It got us nervous. What are the most common reasons buyers cancel escrow?

Joe R, Newport Beach

Great question Joe,

Never fear! Interviewing a few agents will help you hire the most knowledgeable and experienced person and brokerage to represent you and help avoid cancellations through strong negotiation, problem-solving and communication skills.

In California, buyers may cancel escrow for various reasons at no penalty (although they may need to cover costs they’ve incurred such as inspection, escrow and appraisal fees) if they cancel within the buyer investigation, appraisal and loan approval contingency periods. Your agent will remind you of these important deadlines during the escrow process. Buyers cancel escrow for many reasons, but most reflect concerns that arise during the home buying process. One of the most common reasons is the discovery of significant issues during the home inspection. Problems such as structural damage, mold, or roof replacement needs, or outdated electrical systems can lead buyers to reconsider their purchase. Sometimes these issues can be remedied by the Seller offering to repair items or offer a credit to the buyer to repair it later.

Financing issues also play a critical role; if buyers are unable to secure a mortgage or if interest rates rise unexpectedly, they may be forced to cancel. Appraisal discrepancies can also cause cancellations, particularly if the home appraises for less than the purchase price, which may require a larger down payment, which the buyer may not have. Additionally, title issues, such as unresolved liens or disputes over property boundaries, can discourage buyers. Lastly, personal circumstances, including job loss or changes in family dynamics, can prompt buyers to back out of escrow.

Understanding these common reasons will help you prepare your home for sale and resolve issues that arise during escrow.