Real estate can be risky for agents themselves. Fickle buyers, unforeseen structural issues, setbacks in financing can all scuttle a deal.

By Nancy Keates | Wall Street Journal, Feb. 19, 2015

She saw a ghost. That was the excuse, anyway, for one buyer’s decision to back out at the last minute from closing on a $1.4 million house in San Francisco, losing a roughly $21,000 deposit in the process.

Her real-estate agent, Amanda Jones of Sotheby’s International Realty, estimates she spent about 250 hours over six months showing the prospective buyer about 130 houses in the Bay Area. In the end, she believes the woman just changed her mind. “It was horrible,” the agent says.

Few professions demand as much upfront time and legwork with the risk of zero return on the effort as real-estate sales. Fickle buyers, unforeseen structural issues, setbacks in financing can all scuttle a sale. Now, there’s another common deal breaker: an overheated housing market in which frenzied bidding wars lead to rash decisions—followed by buyers’ remorse.

“It’s such a fast-paced market right now. Buyers are expected to make offers after seeing a place once at a packed house, so they don’t have time to think things through,” says Kaitlin Adams, an agent with New York-based Compass.

Nationally, median home prices in 2014 rose to their highest level since 2007, while housing inventory continued to drop—falling 0.5% lower than a year ago, according to the National Association of Realtors. The percentage of buyers backing out of contracts has gone up by about 8%—to 19.1% in the third quarter of 2014 from 17.76% in the third quarter of 2012, according to Evercore ISI, an investment-banking advisory firm.

The war stories come mostly at the high end in select markets, where affluent buyers are less affected by the prospect of losing thousands in earnest money or down payments. Cormac O’Herlihy of Sotheby’s International Realty in Los Angeles recently had buyers he calls “nervous nellies” back out on a $6 million house. “They enjoy an overabundance of financial ability,” Mr. O’Herlihy says.

Julie Zelman, a New York-based agent with Engel & Völkers, spent the past year searching for an apartment for a recently divorced client in his 40s who said he wanted to move from Manhattan’s Upper East Side to a building downtown—preferably one populated by celebrities. Twice the client was about to close when he changed his mind: The first time was at a building called Soho Mews—he’d read it was the home of an Oscar-nominated actress and a Grammy-winning musician. The man offered $2.8 million for a two-bedroom unit but then backed out. Another time, he walked away after offering $3.1 million on a two-bedroom unit in 1 Morton Square, where a popular TV actress once lived.

“He was wasting everyone’s time. It was humiliating for me,” says Ms. Zelman, who thinks the client wasn’t mentally ready for such a big change. The client ended up renting an apartment on the Upper East Side.

When buyers change their minds before signing a contract, they don’t lose any money. Nataly Rothschild, a New York-based broker, says she thought she had finally closed a deal after a couple’s yearlong house hunt. Because there were five other offers pending, her clients offered $200,000 over the almost $2 million asking price on the three-bedroom, three-bathroom listed for $1.8 million on Manhattan’s Upper East Side. Then Ms. Rothschild, an agent at Engel & Völkers, got a call from the couple’s attorney saying the buyer, who was nine months pregnant, had broken down in tears, saying she just couldn’t sign because it didn’t feel right. “I felt miserable for her,” says Ms. Rothschild. “But we were all shocked.”

Buyers who change their minds after signing a contract typically lose their earnest money, a deposit that shows the offer was made in good faith. That money is often held by the title company or in an escrow account and later applied to down payment and closing costs. If the deal falls through, whoever holds the deposit determines who gets the earnest money. In standard contracts, the earnest money goes to the seller. If, however, a contingency spelled out in the contract emerges—the buyer’s financing falls through, for example—the buyer usually gets the earnest money back.

Vivian Ducat, an agent with Halstead Property in New York, had a client lose $55,000 in earnest money after a change of heart on a $550,000 co-op. The woman, who was living in California, had wanted to buy a place in New York because one of her children was living there. At the last minute she balked, emailing that she “couldn’t handle the New York lifestyle.” She’d signed the contract and even filled out all the paperwork for the co-op board.

In rare instances, buyers can get their earnest money back through arbitration if they can prove a valid cause. Ms. Adams, the Compass agent, represented the sellers of a one-bedroom apartment in Brooklyn Heights that was listed for just under $600,000. When a bidding war with five offers ensued, the unit went for $70,000 above asking price to a couple from the West Coast who wanted to use it as a part-time residence. After the contract was signed, the building’s co-op board enacted a new rule that owners had to live in the building full time. As a result, the West Coast couple got their earnest money back, and the unit sold to another buyer at about $80,000 above the asking price.

Even if the real reason is simply buyer’s remorse, real-estate agents say buyers can get back earnest money as long as they can find some valid-sounding reason for dissatisfaction. Ms. Jones in San Francisco had clients withdraw an offer on a $1.1 million house. They’d been looking for two years and when the house came up the wife was traveling abroad; the husband said he was sure she would love it. Turns out the wife didn’t like it at all. The couple used the excuse of a leak found in the inspection process and got their $33,000 deposit back.

And about that ghost. A buyer who put down $43,000 in earnest money pulled out after a neighbor told them the previous owner had died in the home, among other things. The matter went into arbitration, and the potential buyer got the entire deposit back.

Ever since then, Ms. Jones says she has sellers disclose in their contracts the possibility that there might be a ghost. “You have to prepare for anything,” she says.