Interest rates are up, and then they go down. Prices fall sharply then, almost overnight, they’re on the rise again. For some, it’s all just a matter of timing. You took the time to save up your down payment, now you’re ready to find your dream home. The money’s in the bank, you’re prequalified and you’re working with an agent. Will your dream home be out there now that you’re ready?
The same holds true for the inner workings of a real estate deal – it’s all just a matter of timing and sometimes timing is everything. Having been involved in hundreds of real estate transactions, the one thing I’ve found to be consistent with the smoothest ones is the fact that the timing from submission of an offer to passing papers at the closing table has been calculated with some level of precision. The buyer wasn’t succumbing to pressure to close the same month their lease was expiring or some date fixed by the seller to accommodate their vacation schedule and the lender wasn’t promising to deliver according to some unrealistic deadline just to get the loan. Instead, a set of very achievable deadlines was chosen for each of the major steps of the process after consultation with all of the necessary parties and consideration of all that must be accomplished before a closing can occur. This is the way real estate transactions should always be handled. But, that’s rarely the case.
Often when an offer comes across my desk for review, it’s already been accepted and that was after some negotiation back and forth. The first thing I always look at is the timing of the transaction. When is the home inspection deadline? When do the parties need to execute the Purchase and Sale Agreement? What date did the buyer’s agent include for the application and mortgage contingency deadlines? When are we closing? Is there enough time to get the tax and title information, resolve title issues and prep for closing? Or, are we going to be requesting extensions of all of the deadlines right out of the gate?
If there was some back and forth between the parties, it’s typically not because of timing but more a matter of pricing or inspectional issues. The parties hash out their differences and the offer gets modified with a new price, or some seller concession. But, the parties never bother to revisit the dates of the original offer and now it is one week, two weeks or even longer since it was first submitted. Those original deadlines have now been shortened and we’re not even at the Purchase and Sale Agreement stage! Furthermore, the buyers may not have even had a full conversation with their lender about how much time it will take to process their mortgage application, order and review an appraisal, review title issues and so on.
The agony that ensues because of poorly chosen dates is difficult for any of the parties to deal with. Often a title examination requires additional work because of possible defects or a complicated history. This then delays the issuance of the mortgage commitment, which in turn holds up the lender from clearing the loan to be closed. If there are true title defects, it can take weeks of discussions to come up with possible resolutions. Not only can this slow the mortgage process, but it can drive the whole transaction to a screeching halt. The ramifications go on and on. Imagine the scenario where the seller has already gone and put a replacement property under contract with the intention of using the proceeds from the sale of their existing home, which may or may not close in the near future!
So, what is the answer? There are three actually: planning; diligence; and flexibility. When making and accepting offers, the parties must plan well by reviewing their needs, the lender’s needs and those of other affected parties as well as considering how much time is needed to complete the various tasks. The parties, especially the buyer, must be diligent in responding to document requests from their lender, timely completing inspections and other due diligence and maintaining constant communication with their attorney, agent and lender. Sellers need to be diligent about making negotiated repairs or vacating the property. Finally, the parties must be flexible. They have to understand that despite negotiated deadlines and best efforts, some transactions just can’t close on time as originally planned due to issues that could not be foreseen or resolved as quickly as desired. If the parties contract with each other installing these three attributes into their transaction, a successful closing will not be too far off.