Lew Sichelman
Once a sales contract is signed, it takes more than four weeks, on average, for the deal to finally close. But a lot can go wrong during that time period – and often does.
Sometimes the problem is as simple as correcting a misspelled name on the documents, which should take only a few minutes to fix. Or the closing agent is caught in traffic and will be an hour late.
But every once in a while, the complication can be major. New York City agent William Yau has had a couple of closings pushed back five weeks until the issues were solved. In another case, the sellers’ attorney did not file the necessary paperwork on a probate sale; a month later, Yau and his clients were still waiting.
The biggest problem with closings, though, is usually a failure to communicate. The various parties – the real estate agents, the lender and the title agency – do not talk to each other. Sometimes, for example, the agent fails to tell the lender and the title company about changes to the sales contract and everything grinds to a halt.
That glitch will “delay closing and upset everyone,” said Arizona agent Rebecca Hidalgo Rains. “The buyer can’t move in, the seller can’t get paid and everyone working on the deal has to work more hours.”
Why Insurance Is Big Cause of Hiccups
One consistent problem, said Florida agent Alexei Morgado, is the buyer’s failure to purchase homeowner’s insurance. Sometimes it’s just an oversight, and other times they don’t purchase enough coverage to satisfy the lender.
In other instances, though, insurance may be so expensive that it fouls the deal altogether.
“Insurance is a big one,” said Benjamin Schieken of Fincast, a free tool that helps borrowers compare loan estimates. Higher insurance costs drive debt-to-income ratios so high that lenders will back out of the deal, he explains.
“I witness insurance-related closing [problems] on a daily basis,” said Levi Rodgers, co-founder of the Texas-based VA Loan Network. “Secure your insurance commitments early.”
The most common problem that mortgage specialist Jordan Del Palacio sees is that buyers don’t have enough cash.
“In many cases, investment companies won’t wire or send a check directly to the company handling the closing,” he explains, adding that the funds are often sent first to the buyer, to be forwarded to the closing company and applied to the purchase.
Sometimes the buyer fails to get the necessary documents to the lender in a timely manner. Documents need to be sent quickly to allow time for all the work that needs to be done, said Del Palacio’s colleague Kevin Watson.
“I think some borrowers don’t fully understand that part, because it is typically 30 to 45 days till closing, so they don’t have a sense of urgency,” he said.
Prorated taxes also “often take people off-guard,” said SoldFast co-founder Ryan Dossey. With so many numbers being thrown around, people may forget that they have to pick up their share of the property’s annual tax levy.
Closings scheduled for late in the day can cause trouble: If an issue pops up, the signing will be bumped at least one day. Schedule your closing late on a Friday afternoon and you might not actually finish until Monday.
Not Always the Buyer’s Fault
Buyers aren’t the only ones who complicate settlements. Sellers do, too – some by taking with them something the buyer thought was included in the sale. New York agent Veronique Perrin notes one time when the sellers removed a designer chandelier that was not disclosed in the contract. She ended up rushing to buy a similar piece while everyone waited at the closing table.
Not everything works out well, especially when home inspections are involved. Often, the inspector uncovers some items that must be repaired, and as part of the contract, the seller agrees. But the seller might then do the work themselves, hire unlicensed workers or fail to make the repairs at all.
If the seller can’t provide a paid invoice from a licensed contractor at closing, the contract is null and void. Now the two parties must negotiate anew, and the closing is put off – or canceled altogether.
“I’ve seen many issues during the final inspection,” said Morgado. “I’ve seen cases where the seller did not undertake an agreed-upon repair or removed something that was not supposed to be removed.”
Mortgage specialist Chris Parks has seen cases where the seller did not complete repairs on time, delaying the settlement. He’s also seen qualified contractors called in to redo amateur work.
Appraisals sometimes cause hang-ups, too – “usually because the lender was sitting on its hands instead of ordering the appraisal, then being slow to communicate any inspection requests,” said Dossey. One time, he said, the seller fixed an exterior step to pass city code, but the appraiser pushed closing back a month because he couldn’t come and verify the work in person.
In other cases, sellers, in an effort to be nice, will patch and paint walls with holes where pictures or curtains were hung. But if the paint doesn’t match, the result could be disastrous.
That sort of thing “has delayed so many of my closings,” Hidalgo reports. “I have had buyers demand that their houses be repainted in the last hour because it looked awful during the final walk-through.”
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
