People in town were pretty excited to see a “pending” banner over the real estate sign on the side of the old Palmer’s Restaurant building on La Conner’s waterfront.

The 7,300-square-foot building went back to the bank in 2010 and, except for a small art gallery in front, has been sitting vacant ever since.

But the building, which was listed at $449,000, fell out of escrow last week, according to listing agent Dick Nord of Windermere Real Estate. The potential buyer was set to open a new restaurant and had funding all set up with the bank but backed out, fearing uncertainty in state...