Have you ever heard the old adage that “life is a marathon, not a sprint?” The same can be said about buying or selling residential real estate. Even after a buyer’s purchase offer has been accepted, there is still a long way to go before the property successfully changes hands. In fact, the period from contract to closing — often referred to informally as “escrow” — is rife with all sorts of obstacles that can cause the closing to be delayed, or, in a worst case scenario, even fall through altogether.
Fortunately, when it comes to all things real estate, another old adage is equally true: “knowledge is power.” Preparing for potential issues ahead of time with your real estate team can help you sidestep some common pitfalls that might affect your closing — allowing your transaction to proceed more smoothly, more comfortably, and on a timeline that works for your busy schedule.
Curious about what to watch out for as a buyer or seller? Let’s explore seven common issues that can affect your closing timeline:
1.) The Home Inspection Reveals Issues That Must Be Addressed
Broadly speaking, most purchase offers include a contingency requiring a home inspection before a sale can be finalized. A home inspection is a thorough but non-technically exhaustive examination of a home’s major systems and parts, performed by a licensed expert. If the results of a home inspection reveal significant issues, the buyers’ and sellers’ representatives may need to agree on next steps, which could ultimately impact the transaction’s closing timeline. For instance, the parties involved in the deal may need to negotiate over credits for repairs, required fixes, or even a new sale price. In some extreme cases, the buyers may even choose to back out of the sale altogether, based on the findings of an inspection.
2.) There Are Title Defects
In order for a seller to convey ownership rights for a property, a title search must be performed. The title search is a prerequisite for obtaining owner’s and lender’s title insurance policies, and is designed to ensure that the title that the seller holds is free of encumbrances and defects, and is, thus, legally able to be transferred to a new owner.
If the title search process uncovers a defect or cloud on the title — such as an outstanding lien or encumbrance on the property — this issue will have to be resolved before the transaction can proceed.
3.) The Bank Appraisal Comes In Too Low
Broadly speaking, when purchasing a home with a mortgage, a bank or lender will require an appraisal as a requirement for obtaining financing. An appraisal is used to protect the lender’s interest in the property, providing an assurance that the home is worth the amount that they are lending — giving them some confidence that they will be able to recoup their investment in the event of a foreclosure down the line. An appraiser will use various mechanisms to calculate a home’s value, with a particular focus on evaluating the current market values on comparable homes in the area. Oftentimes, the appraised value will not line up one-for-one with a home’s list price. If the bank appraisal comes in significantly lower than the negotiated price, the parties may need to spend time working together to find a solution, which might include negotiating on a lower sale price, the buyer agreeing to increase their down payment, or even terminating the sale.
4.) Issues With Financing
While obtaining a mortgage preapproval can help minimize the potential for hiccups during escrow, the reality is that there is always the slight risk for lending issues that can affect the purchasing party’s ability to secure financing — which may come down factors out of the buyer’s control, such as a sudden change in mortgage interest rates or a swing in the buyer’s credit score. Generally speaking, if a buyer cannot obtain a loan, this will jeopardize the entire transaction (and is why many purchase contracts feature a mortgage contingency designed to allow the buyer to cancel the contract without incurring a loss should they prove unable to get a loan meeting the necessary terms).
5.) Trouble With Insurance
It’s important not to overlook insurance when looking ahead to closing. Insurance issues can and do crop up — and, when they do, they can often cause significant delays in the closing timeline for buyers and sellers alike. For instance, there may be a situation in which the seller previously had to make a sizable insurance claim on the property, which might make the home all-but-impossible (or at least incredibly costly) to insure moving forward, creating headaches for potential buyers. Similarly, lenders might require homeowners to purchase hazard insurance that goes above and beyond what they are capable of paying on a monthly basis, an unpleasant surprise which could cause escrow to stall.
6.) Little Errors or Mistakes Add Up to Costly Delays
There are a lot of moving parts that go into a standard real estate transaction — and small mistakes or omissions can add up to big headaches. For instance, your closing timeline might be affected by something as small as a date or a name being misrecorded. Similarly, the contract may have contingencies that go unfulfilled in the hustle and bustle of the contract-to-close period — such as a seller forgetting to make negotiated repairs, or, perhaps, moving out a household item that was meant to be included in the sale. Generally speaking, such issues can be avoided with clear lines of communication between all parties -and surrounding yourself with local experts with a keen eye for details, who know the ins and outs of closing a sale in your area.
7.) Buyers or Sellers Develop “Cold Feet”
While this is perhaps the rarest occurrence on this list, the reality is that it can happen. Even after waiving contingencies, one party may ultimately decide to back out of the sale for personal reasons. In this case, earnest money comes into play. If the buyer backs out without a justifiable cause, the seller is entitled to retain the balance of the earnest money deposit. If the seller is the one who backs out, then the buyer may be in a position to seek damages, including the earnest money deposit.
Landtrust Title: Your Partner for Results
When your real estate agent works with Landtrust Title, you get a partner for results. We do things differently than other title companies — whether it’s personalized support, convenient closing times that meet your schedule, or quick and easy payment methods ensuring everyone gets paid right away, our attention to detail will help ensure a smooth transaction. We are happy to answer any and all questions you may have, and we’re obsessed with making your experience so seamless, you don’t even have to think about it. If you have any questions about what to expect as your real estate deal closes, Landtrust Title Services can help. Please contact us today at [email protected] or by phone at 312.528.9210.