I’ve been a real estate agent since 1986 and early on in my career I might have wondered why real estate closings can go wrong. While most transactions make it from contract to the closing table, there may be some things that go bump in the night. Nothing is more stressful than a closing going south at the last minute, especially if problems can be avoided.
Here are some bumps I’ve personally experienced over the years, and in retrospect, how I might have avoided them. There are many reasons why real estate closings can go wrong. I try to stay ahead of the game and anticipate any problems that might occur.
Pre-approval bites the dust
The buyer has been pre-approved by the lender, but wait… something changed! Turns out the buyer has poor credit. This is usually discovered during the loan application review, however, the bomb may not drop until you’re three to four weeks into the transaction. In my case the buyer switched loan programs and under the second program did not qualify. This could have been avoided if the buyer’s agent had educated his/her client on the importance of debt load.
When a buyer makes an offer his/her bank will require an appraisal. Finding comparable sales in an area where the volume of sales is low and the average price is low makes it difficult to justify the appraisal on the purchase and sale contract. It ends up being a shot in the dark and if the gap between the asking price and the appraisal is cavernous, it will be difficult to come to a mutually acceptable price. More importantly, the buyer’s lender may only finance the appraisal amount.
Another situation, which occurs far more frequently, is appraisers from out-reaching areas who are not familiar enough with the comparable properties to generate an accurate appraisal.
Seller fails to properly complete repairs
Let me share a personal example: a seller client was required to make some electrical repairs after the building inspection. Same seller had someone he thought was a licensed electrician make the repairs. Unfortunately, the guy was not legit and two days before the closing I had to call in some favors. An electrician with whom I’ve worked in the past did me an enormous favor. He verified what still needed to be done and either approved or flagged prior work. The seller ultimately ended up leaving $1,200 to the buyers for repairs. Make sure you have a trustworthy professional make any necessary repairs and be sure to have copies of all transactions.
Buyer did something to decrease his credit score
Here’s a good one: A buyer bought a brand new pick-up truck shortly after signing a purchase and sale agreement. This doesn’t fly with lenders if debt-to-income ratios are too close. It’s best that buyers not make any other purchases until after the closing. This way they aren’t in jeopardy of losing their new home and all of the money they’ve spent (attorney fees, inspection costs, due diligence fees, earnest money deposit, appraisal costs, title search costs, etc.).
Unknown structural issues arise
One way to avoid this is to have a pre-listing inspection when you are listing your home. This way, if there are structural issues you have time to remedy them prior to the sale. Buyers tend to be terrified (often unnecessarily) of structural issues, which can cause a cancellation of the sale.
Trying to do too much in a short period of time
When a time frame for closing is tight, there is no room for error. If a building inspection shows problems that need to be addressed, you need sufficient time to do so. Make sure there’s enough time between financing approval and closing date to address any surprises.
You’ve got MOLD!
This can be a deal-killer, and again, can be avoided with a pre-listing inspection. Same for failed water test, failed septic reports, or lack of necessary permits. Get it together and make sure all tests will pass before you come to the negotiating table.
To avoid a congressional act of congress, give your transaction six to eight weeks, pay attention to details, and hold everyone accountable. That way you’re sure to make to the closing table in one piece. So many things can go wrong in a real estate sale, but for the most part there is a cure, and with perseverance and good communication between all parties, usually those problems can be solved.
So, what bumps in the night have you experienced? Do tell. I’d love to hear from you. Feel free to share your comments below, or on my Facebook page.