Whether it’s because of a lender who over-promised and under-delivered, a buyer who dropped the ball or an agent who failed to communicate timely details — problems occur when you’re down to the wire. Here’s how to fix last-minute closing issues fast.
Real estate closings are stressful enough, and there can often be last-minute issues that arise, threatening to delay or derail them altogether.
Although anticipation, planning and preparation are key, some situations crop up that are simply beyond anyone’s control.
Whether it’s a lender who over-promised and under-delivered the timeline for loan approval, buyers or sellers who dropped the ball in some way (despite numerous reminders from their agent) or an agent who either failed to communicate timely details or wasn’t paying close attention to all key milestones of the transaction — problems occur when you’re down to the wire.
Should have, could have, would have can be debated all day long as people play the blame game, but the clock is ticking, the closing deadline is looming and solutions must be devised to address whatever curveball is being thrown at the transaction.
Here are six last-minute closing problems and how to address them proactively:
1. Lender delays
This is one of the most frustrating problems because this is often beyond everyone’s control. Getting to the bottom of what is causing the delay is key.
Assuming it’s not because the lender is waiting on documentation from the buyer, establishing a realistic timeline for how long the lender needs to wrap up the loan process is imperative. Also, an amendment extending the time frame for loan approval and closing is likely needed.
Depending on the buyers’ and sellers’ living situation, this can have a huge domino effect if buyers are vacating their current residence (i.e. a rental) and already have things on a moving truck while the sellers are still waiting on funds to close on another property.
The lender and/or buyer may need to offer to pay additional prorations (taxes, association dues and other fees) that go beyond the original closing date on behalf of the seller. The seller could allow the buyers to move in with an occupancy prior to closing agreement so long as the buyers secure appropriate renters insurance and place utilities in their name.
Conversely, the parties could renegotiate to let the seller remain in the home for up to a specified time (three days after closing is a common timeline used) until the home is officially closed to avoid a moving fire drill.
2. Unfinished business
As agents, we have all encountered walkthroughs where the seller was still moving out with a maze of boxes or lots of unwanted items that had yet to be cleared out.
Agents may need to call in a favor with their mover or chief handyman of choice to pitch in and get everything removed in time for closing.
Extending the closing date is typically not an option, especially when the buyer has a loan package that has been finalized and changing the date would trigger everything having to be redone and redisclosed per Truth in Lending Act guidelines.
3. Incomplete repairs
Getting contractors to address repair items can often be like herding cats.
Most of these people are continually booked and often juggling multiple jobs, so the contractor who was given the repair list and closing date three weeks ago is literally showing up to take care of the job three days before the actual closing.
Sometimes the job can be more involved than first thought, which can also contribute to delays.
Additionally, sometimes a reinspection or walkthrough can reveal repairs that were not done properly and need correction or were accidentally missed.
There are a few ways to handle this situation depending on everyone’s comfort level with the scenario at hand. The seller can opt to escrow some of the closing proceeds to be held until the repairs are complete.
Typically two to three times the actual cost should be a sufficient cushion, unless the job is extensive and involves hidden damage. The title, escrow or attorney’s office handling the closing can draft a post-closing repair agreement that outlines the procedure for payment to the contractor(s) and the release of remaining funds after closing.
If extending the closing date is an option, the parties may opt to go this route. It’s a much less practical choice as moving plans are well under way, which makes it more difficult to change things.
4. Undiscovered or undisclosed property condition
Surprise is never a good thing in real estate, and there is nothing worse than being unpleasantly surprised during a walkthrough. Some of the worst surprises include finding a dirty house, damaged or stained carpet previously hidden by furniture placement or, even worse, worn or discolored flooring that reveals itself when rugs are pulled up.
Then, there are the walls that show dents, marks, nicks and scratches once any hanging items have been removed. Needless to say, this infuriates the buyers, and they don’t want to close.
Time to step back and take a deep breath.
First, it is important to make sure buyers and sellers have an accurate understanding — at the time the offer is executed — of what the obligations of the seller are per the contract.
This language can vary depending on the real estate board’s contract. Some contracts may address this in some fashion, and others may not at all. A common term that is often used is that the property should be in “broom swept” condition upon move out. What does that even mean?
It typically does not require the property to be professionally cleaned. There is a difference between sweeping up debris and having the entire home thoroughly cleaned.
Educating the parties on what is customarily done in the market where the property is located is crucial to managing expectations. Then, the agents should work to ensure any requests that go beyond the minimum contractual requirements (e.g. home and carpets to be professionally cleaned prior to closing, etc.) are made part of the purchase and sale contract and executed by both the buyer and seller.
That being said, should unexpected condition issues arise, it really depends on the flexibility and willingness of all parties involved to find a resolution. Resales are not going to look perfect at move out, but if stains or other damages are revealed, the seller should be prepared to offer the buyer a credit whether it be toward closing costs or in the form of a cashier’s check.
Depending on the extent of the damage noted, the seller may need to have money withheld in escrow to bring in appropriate repair contractors. If the home is not clean, this is where having a cleaning crew on speed dial may come in handy for agents.
Speaking of surprises, another situation that can cause a closing emergency is when something that was supposed to stay per the contract goes missing in action. There have been many a refrigerator, washer and dryer, bathroom mirror or light fixture that magically disappeared in the middle of the night.
The listing agent should continually remind the seller of the items that are to stay throughout the transaction, particularly the last few weeks prior to closing. Should these items get removed, they should be retrieved and returned in time for closing.
If they cannot be returned, the seller will need to compensate the buyer for a suitable replacement. This may mean crediting their closing costs or providing a cashier’s check at closing.
The right thing to do is not only to cover the cost of the item but also the installation as well as any repair or adjustment needed from the item being removed.
6. Natural hazards or weather delays
Unfortunately, a slew of floods, fires and hurricanes are part of our new normal. Natural hazards can have a huge impact on delaying a closing and, unfortunately, no one can control Mother Nature.
Buyers need to secure hazard insurance early on in the purchase process and not wait until a week or two before closing. For those who are buying in hurricane-prone regions, insurance carriers may suspend writing coverage when the National Hurricane Center issues a tropical storm or hurricane watch or warning in the area known as “the box,” which typically covers the Florida peninsula and surrounding areas in the Gulf of Mexico and Atlantic coast.
After a storm comes through, lenders will likely require a storm damage assessment to be done on any properties that are under contract to close, which means the appraiser has to go back and reinspect the property to ensure the structure is still standing, undamaged and inhabitable.
This can delay the closing date for a couple weeks. Agents should be advising buyers and sellers about these scenarios on the front end, and they should encourage buyers to have back-up plans in place for interim accommodations or to extend current accommodations (for buyers).
Generally speaking, real estate contracts do have provisions about handling the closing date when there are delays caused by natural hazards.
No two transactions and closing dilemmas are the same, but these remedies can be used to address the unexpected delays that can and often happen right before everyone goes to sign on the dotted line.