How to Avoid a Delayed Closing: 7 Common Roadblocks to Be Aware of

 How can you avoid a delayed closing? Be aware of these 7 common issues that could set back your closing date.

What does delayed closing mean?

Unforeseen circumstances can arise throughout the homebuying process, and depending on how long it takes to resolve the issue(s), it could result in your home not closing on time. Sometimes when a homebuyer wants to close on the home as quickly as possible, it can lead to unrealistic contract dates. However, there are often unpredictable roadblocks that can arise during the closing process that will push back your closing and keep you from meeting your deadlines. For example, a termite inspection could show that there is damage that’ll require major repairs or the appraisal value of the home comes in lower than the price you offered on the home.

Although a delay in closing isn’t always the case, it’s best for both buyers and sellers to be aware of the common reasons for delayed closings.

1. Financing issues

Unless you’re submitting an all-cash offer, you’ll need to obtain financing to purchase your home. It’s recommended to get pre-approved before house hunting to give yourself a realistic idea of how much home you can afford; however, a mortgage pre-approval doesn’t guarantee that your loan application will be approved.

By far, one of the biggest nightmares is that the mortgage falls through on the closing day. To avoid any financing roadblocks or a delayed closing, ensure that there are no major changes with your financial situation from the time you’ve submitted your loan application to the day of closing, such as buying a new car. It’s also important that buyers come to closing prepared with all necessary closing documents and payment for closing costs.

How to remedy the situation

To avoid a closing delay or, even worse, the sale falling through, it’s essential to be upfront and honest with your loan officer. Buyers avoid making any changes to their credit reports before the deal has gone through. He recommends not applying for new loans or credit cards and avoiding any increases in your credit card balances. Also, avoid accepting new job offers before the deal is closed any change in the employment status could force the lender to decline the loan.

2. The home appraisal is lower than the sale price

home appraisal provides the fair market value of a property and is typically required by your mortgage lender. It’s used to determine how much you can borrow and assures the lender that they aren’t lending more than what the home is worth. So, if the appraisal comes in lower than the agreed-upon purchase price, this can cause delays with closing as your lender may deny the loan application or require you to pay the difference.

How to remedy the situation

Since your lender will only give you what the house is worth, it’s up to you and the seller to determine how to make up the difference. Fortunately, you have a few options and your real estate agent will advise you on the best plan to resolve the situation and avoid a delayed closing.

  • You can ask the seller to lower the price.
  • You can make up the difference by spending money out of pocket.
  • You can negotiate with the seller to meet you in the middle. In this case, the seller would lower the price, and you’d pay the remaining balance in cash.
  • You can challenge the appraisal and request an appraisal review.

3. Major damage is found during the home inspection

 If your home inspector uncovers potential problems or damage that could affect your health or safety, such as structural damage, the buyer and seller will need to reach an agreement on how to address these issues. Depending on the extent of the damage and negotiation process, repairs could take longer than expected, which may push back your closing date.

How to remedy the situation

Once you have your heart set on a home, it can be tempting to glaze over any issues to get the keys in your hand as quickly as possible. But once you become the owner, it’ll be your responsibility to deal with any repairs needed. To avoid a delayed closing, you can ask the seller to complete the repairs before purchasing the home (if they can be done quickly) or request some form of seller concession to offset the cost of repairs. The goal is to remain as open as possible when negotiating to prevent the deal from falling through.

4. Clouds on the title

Before you can close the deal, you’ll need to make sure that the title is clear. A title company or real estate attorney will conduct a title search, which examines all public records to determine the property’s ownership history and identify any clouds on the title. Clouds on a title are any encumbrances or unresolved claims that indicate a potential issue regarding ownership, such as liens or delinquent taxes.

Another example that could cause a delayed closing is unpaid property taxes. The owners will need to pay the balance and any other debts for there to be a clear title so the transaction can close. 

How to remedy the situation

If there are clouds on the title, there’s not much a buyer can do on their end besides waiting until the issues are resolved, and the title is cleared. 

Sellers should be proactive to avoid a delayed closing. Once the seller has received the preliminary title report, they should address any issues as soon as possible. To avoid potential issues or delays, Western Title Company recommends informing your title or settlement agent of any IRS tax liens or bankruptcies that involve the seller or the property. 

5. Delayed approvals from Homeowners Associations

If you’re purchasing a home that’s a part of a Homeowners Association (HOA), there are additional hoops you may need to jump through and documents you’ll have to fill out to close on your new home successfully.

How to remedy the situation

The best way a buyer can avoid a delayed closing caused by approval delays is to submit HOA applications and additional documents or orders early on in the closing process. It’s crucial to keep a close eye on the status and periodically check in as the closing date approaches.

6. The buyer is unable to sell their house

common contingency is the home sale contingency, which means the buyer’s offer is contingent upon selling their current home. If a buyer currently owns a home, they’ll oftentimes need to sell their old house before closing on a new one. This contingency allows the buyer to back out of the deal if the sale falls through on the existing home or if it doesn’t sell by the specified closing date.

How to remedy the situation

A seller can do their due diligence when considering a contract with a home sale contingency by researching the average days on the market in the area to estimate how fast their home will sell. They can also price their home competitively for a quick sale. However, if the sale of their property gets drawn out, this could cause a delayed closing or, worse, jeopardize the transaction altogether.

If the buyer has trouble selling their home, the seller can include a kick-out clause contingency in the purchase contract so they can continue to market their home and seek a better offer. This also puts the seller in a better position to negotiate if a second offer arises.

7. Issues found during the final walk-through could lead to a delayed closing

Once the seller has moved out of the home, the buyer will have the opportunity to go through the property one last time before taking over ownership. If you and your real estate agent encounter any problems during the final walk-through, such as agreed-upon repairs that weren’t completed or damage that occurred during the move-out process, this could also lead to a delayed closing.

For example, if all household appliances are included in the sale, but you notice that the refrigerator is missing during the final walk-through, this issue would need to be addressed before closing.

How to remedy the situation

Unfulfilled contingencies during the final walk-through have a good chance of pushing back the closing date. However, your real estate agent should be communicating with the seller’s agent throughout the process to ensure any contingencies are being taken care of. The seller can also offer additional concessions to avoid a delayed closing or having the deal fall through.

Is it normal for closing to be delayed?

If you’re worried about a delay in closing, don’t be, it isn’t unusual. According to a 2021 survey, 26% of surveyed real estate agents reported closing delays within the last 3 months and only 5% reported terminated contracts. While it’s not an ideal situation, issues can typically be worked out quickly with the cooperation of both the buyer and seller.

Read Full article:Redfin.com