Updated September 28, 2026
Whether you keep the deposit depends on the contingency timeline — that mechanic is the same one that governs any buyer walking away. What's worth understanding on its own is why financing actually collapses in the first place, because a low appraisal is only one of several distinct failure points, and each one calls for a slightly different read on whether the deal is worth trying to save.
A low appraisal gets the most attention because it's the most visible, but on LA multifamily deals, financing collapses for reasons that have nothing to do with what the building is worth.
Debt service coverage doesn't pencil. A lender sizes the loan against the building's net operating income, not just its value. If insurance costs have spiked, or if the building's rent growth is constrained by rent-control formulas the buyer's underwriter modeled optimistically, the loan amount the income can support may be smaller than what the buyer expected — independent of any appraisal.
The rate lock expires before closing. Interest rates move during escrow, and a buyer's rate lock has a shelf life. A deal that penciled at the rate locked sixty days ago can stop penciling if the closing slips and the buyer has to re-lock at a worse rate.
The lender's own underwriting standards shift. Lenders periodically tighten criteria for a property type, a submarket, or a loan size — sometimes mid-transaction, for reasons that have nothing to do with the specific buyer or building.
The buyer's own financial picture changes. A change in the buyer's liquidity, another deal that went sideways and tied up their capital, or a change in their lending relationship can derail financing that looked solid at the time of the offer.
A title or survey issue surfaces that the lender won't finance around. Rare, but it happens — an encroachment, an easement, or a title exception the lender's counsel won't accept without resolution.
Knowing which of these is actually happening changes what you do next. A rate-lock problem might be solvable by extending the closing date. A DSCR problem caused by the building's own rent-control-constrained income isn't going away no matter how long you wait — the next buyer's lender will run the same math.
Get the specific reason, not just "financing fell through." Your broker should press the buyer's broker, and ideally get direct confirmation from the lender. The vague version of the story tells you nothing about whether to extend, renegotiate, or move on.
Know exactly where the contingency timeline stands before you decide anything. If the contingency is still live, the buyer likely has a right to terminate and recover the deposit. If it's already released, your leverage is different.
Weigh a short extension against re-marketing, based on the actual cause. A rate-lock or paperwork issue is often worth a brief extension. A DSCR or underwriting problem tied to the building's income is a signal to start re-marketing rather than wait.
Keep a backup offer warm whenever possible. A seller with a credible second option can move immediately; a seller without one starts the clock over from zero.
The deposit, if you're entitled to keep it, rarely covers what a financing collapse actually costs. Market time accumulates while the building sits in escrow instead of being shown to other buyers. The next round of buyers frequently assumes something is wrong with the building rather than the buyer's financing, and begins their own diligence looking for whatever they imagine the first buyer found. If you're selling into a 1031 exchange, the deadlines on your own exchange keep running regardless of why your buyer's financing failed.
Qualify financing sources at the offer stage, not just the buyer. A term sheet from a named lender, evidence of the buyer's relationship with that lender, and a track record of closing similar deals in this rate environment all matter more than the headline price.
Prefer buyers with more equity cushion. A buyer borrowing at lower leverage has more room to absorb a rate move or a DSCR shortfall without the deal collapsing.
Front-load your own financial disclosures. A complete, accurate operating statement and rent roll let a buyer's lender underwrite with fewer surprises. Financing failures caused by information gaps discovered mid-diligence are largely preventable by giving buyers the full picture before they bid, as part of preparing the building properly before you list.
A financing collapse is rarely a verdict on your building. It's usually a verdict on a specific buyer's specific lender at a specific moment — a rate lock, a DSCR model, an underwriting shift. Sellers who diagnose which one happened, rather than treating every failed financing the same way, make better decisions about whether to extend, renegotiate, or start showing the building again immediately.
Do I get to keep the deposit if the buyer's financing falls through?
It depends on whether a financing contingency was still in effect at the time. The full mechanics of contingency stages and the deposit apply here the same way they would for any other reason a buyer terminates.
Is a financing failure different from a low appraisal?
Related but distinct. A low appraisal is one specific cause of a financing failure; DSCR shortfalls, rate-lock expirations, and lender underwriting shifts are separate causes that have nothing to do with the appraised value.
Should I re-market immediately or give the buyer time to find new financing?
It depends on the underlying cause. A timing or rate-lock issue is often worth a short extension. A fundamental income or underwriting problem tied to the building itself is a signal that the next buyer's lender will run into the same wall, and re-marketing sooner is usually the better move.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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