Why closings get delayed, and what to do about it
Closing on a home is an exciting time for both buyers and sellers. For the buyer, it represents the final commitment to purchasing a new residence, and perhaps the first time they have bought a home of their own. For sellers, it's a time to move on to their next address and hopefully make a nice profit on the equity they've built up over the years.
Unfortunately, the closing process doesn't always go forward on the specified dates. Several circumstances, popping up on either the buyer's or seller's side, can make it impossible to finalize the sale on the specified date.
A delay in closing is not an uncommon situation. With a little cooperation between the buyer and seller, it's easy to work things out and make sure the closing goes forward.
Financial issues are often responsible for delaying a closing. Audrey Ference, writing for Realtor.com, says even qualified buyers who were pre-approved for a mortgage can run into issues prior to closing. Unexpected problems might appear on their credit report, or they may have taken on new debt, incurred a lien or judgement, or otherwise altered their financial situation.
More drastic events affecting a buyer's finances can occur between the seller's acceptance of an offer and a closing date. These could include a buyer losing their job or starting divorce proceedings. Other economic trends, such as a sharp increase in interest rates, can also make it more difficult for a buyer to qualify for financing.
Buyers often rely on funds from the sale of a previous residence to go toward the purchase of their next home. However, the buyer should ideally stipulate in advance that their purchase is contingent. Sellers may also seek to delay closing if they need more time to purchase their next residence and move out.
The appraisal is another common misstep in the closing process. Amy Fontinelle, writing for the financial site Investopedia, says that if the appraised value of the home is lower than the offer, the buyer may need to make up the difference or the seller will have to lower the price. The parties can also seek a second appraisal if they think the offer fairly reflects the home's value.
Closing might be pushed back if the buyer and the seller have to resolve problems highlighted by a home inspector's report. Typically, the seller offers to repair the issues or credit the buyer to offset the cost of any fixes.
Insurance issues may lead to unexpected surprises as well. A lender may require the buyer to purchase additional insurance if the home is deemed to be in a high-risk area, such as a flood zone. Lenders may even refuse financing altogether if previous claims at the address resulted in the property being deemed uninsurable.
The title to the property shouldn't have any issues. A title search should not reveal any liens or other claims against the property. If the title is not clear, this issue will need to be resolved before the closing can take place.
Sometimes, simple errors and changes can cause a closing to be delayed. Elizabeth Weintraub, writing for the financial site The Balance, says these could include changes in fees, missing insurance information, expired loans, or the need for updated financial documents.
The contract should clearly outline the expectations for both parties and any ramifications for missing the closing date. These might include fees or other financial penalties that must be paid by the party that fails to meet their obligations by the closing date.
If a buyer can't commit to the purchase on the closing date, it could cost them their chance of acquiring the home. Dan Edwards, writing for the Eastside Real Estate Team in Washington State, says the contract is legally binding and the seller has the option of terminating the contract if the buyer doesn't close on the agreed-upon date. Once they do so, they can consider any other parties or re-list the property, which can be to their advantage if home values have risen since the initial offer.
Of course, many sellers aren't keen on going through the whole process of trying to find another buyer just because of a few hurdles with the closing process. Weintraub says the contracts usually give sellers the option to extend the closing date, and that this option is often warranted if the seller feels the buyer is acting in good faith.
One common way for a buyer to demonstrate this good faith is to release their earnest money deposit to the seller, thus guaranteeing that the seller will receive it even if the contract falls through. Ference says sellers can also ask the buyer for additional earnest money to help cover ongoing expenses such as mortgage interest and taxes.
A seller may agree to early occupancy during a delay in the closing process. Edwards says this allows the buyer to move into the property and pay a prorated rent until the residence is formally transferred. The buyer could have the seller pay a similar rent if they need more time in the home before moving out.