One of the “dirty little secrets” of the real estate industry is that the chances of a real estate transaction closing on time are slim. This little-known fact is shrouded in secrecy and is one of the reasons that real estate sales professionals are sometimes distrusted.
Problems will happen. It’s real estate professionals who are transparent and deal with them that will stay in business and get referrals.
Last summer, it was reported that 25% of impending sales don’t close, although some deals are delayed, but eventually close. But according to most real estate pros, the reality is that very few transactions ever close on time.
Why closing on time is important
Home buyers, sellers, real estate investors, and agents all need to be aware of why closing on time is problematic. For example, homebuyers and sellers can find their lives in chaos looking for accommodation between closings.
If a seller needs the cash from a previous transaction to buy the next home, it’s imperative they know if closing on time will happen. Even more so if mortgage lenders demand that property is sold before the new home loan becomes a reality.
If a real estate professional doesn’t prepare their clients for this possibility, they may find their reputations taking a hit. There’s a lot riding on the closing for business owners who must factor this into cash flow or go broke. For the property investor, missed opportunities and capital sitting idle is lost profit. Late or delayed closing puts earnest money deposits at risk and increases the chance for lawsuits.
Some potential problems causing closing delays
- Title insurance defects
- Parties do not have valid ID at closing
- Buyers funds aren’t available
- Mortgage companies not ready to close
- Credit scores or job statuses change
- Property inspection reports
- New damage to the property
- Declining property values
- Delays in obtaining HOA and condo approval
This is just a snapshot of some of the potential delays in real estate closings. There are many more. These can be compounded when there is a chain of real estate transactions reliant on each other.
Preventing closing problems
It’s not just the inconvenience and costs associated with a delayed closing. In the event that closing on time doesn’t happen, closing sometimes doesn’t happen at all.
In a “hot market” some agents and sellers may think they can whip the property back on the market and find a new buyer. There are unscrupulous realtors, developers, builders, and other sellers who think they can bank more by keeping the buyer’s deposit and moving into another contract.
Some steps can be taken to make the probability of closing delays and their possible results less likely to occur.
- It’s vital to leave more than enough time to close. If the lender says they can close in 30 days, make the contract closing date 60 or 90 days, if possible.
- When paying cash, allow extra time for the title and insurance companies to do their jobs.
- Homebuyers can protect themselves by not making an earnest money deposit to the seller or their agent. Make the deposit to your attorney or title company.
- Sellers can protect themselves by reducing the time buyers have to complete inspections, choosing cash buyers, and accepting backup offers.
What to do when a delay happens
At the first sign of a delay, the real estate professional should act immediately to get extensions and alert all parties. This is where the true professional will prove their mettle.
Usually, a contract extension can be worked out. This may cost buyers more in daily charges, or freeing additional deposits. Everyone should benefit from extending vs. starting over from scratch, assuming the odds of closing are good.
Whatever side of the deal you are on; think how you would want to be treated if you found yourself in the other person’s shoes.