Here are a few things you can do to protect yourself from issues in escrow.

We’ve found that in certain markets that are rapidly appreciating, sellers are having issues with their appraisals. You don’t want to get into a transaction after you’ve already found a replacement home only to have your current home fail to appraise properly, which could cause you to still be negotiating your contract 14 days into the escrow period.

In your counteroffer, have your agent find out how much the buyer is willing to pay above the appraisal. You can’t hold the buyer to that number legally, but doing this will help set the buyer’s expectations, and help you learn how willing they are to bring in extra cash. Looking at their proof of funds is also important; does the buyer have enough money not only for the down payment and closing costs, but could they also pay $20,000 to $30,000 more than that? Are they even willing to do so?

Next, understand that in the state of California, the standard contract allows 17 days for a contingency removal period and 21 days for loan contingencies. We’ve noticed that buyers aren’t wanting to remove their contingencies. If all contingencies are moved and the buyer backs out you get to keep their deposit; if contingencies haven’t been removed, they get their deposit back. So if they don’t remove their contingencies, you, the seller, take all the risk of the buyer losing their job, getting sick, or any number of misfortunes occurring.

“In certain markets that are rapidly appreciating, sellers are having issues with their appraisals.”

I like to include a clause in the counteroffer that states the buyer won’t get occupancy until the close of escrow or a certain number of days after all contingencies have been removed. That puts the burden on the buyer; if they don’t remove their contingencies, they won’t get occupancy since it’s a huge risk for you. This strategy allows my clients to not spend money until they are sure that their home is going into escrow.

If you have any questions about how this works or would like more information, don’t hesitate to reach out to me. I’d love to tell you more.