Top 5 problems that can delay your home closing
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An accepted offer on a home doesn’t deliver immediate gratification. Sure, the buyer and seller might be pleased with the dollar amount, but a lot still needs to occur before that money changes hands. And even after choosing a closing date, there are plenty of potential potholes along the road to transferring ownership of the property. According to May 2022 data from the National Association of Realtors (NAR), 17 percent of recent home sales encountered delays.
Whether you’re the buyer or the seller, no one wants to wait longer than they need to for a real estate transaction to be completed. Here are five of the most common problems that lead to delayed closings.
1. The financing falls through
Even when a homebuyer is preapproved for a mortgage, the loan is not guaranteed. The lender still needs to review the buyer’s finances and officially approve the mortgage. As interest rates have risen in recent months, some buyers have faced uphill battles in being able to qualify for their loans.
“We’re seeing many more buyers who are having financing challenges,” says Lisa Harris, a Realtor with RE/MAX Center in Braselton, Georgia. “In most cases, they were preapproved several months ago, when rates were lower, and their buying power has diminished with the increase in interest rates.”
Significant changes to a buyer’s profile can also create financing delays. For example, if you get approved for a loan and then make a major life decision that impacts your cash flow or your debt-to-income ratio — switch jobs or buy a new car, for example — it’s common to see the home closing pushed back.
2. The appraisal falls short
Any lender will require a home appraisal to verify that the property is indeed worth the price a buyer has agreed to pay for it. The lender is taking a risk, after all, and needs to be reasonably sure of their ability to recoup their losses should the buyer fail to pay.
As home prices have soared to record highs in recent months, appraisal gaps — in which the appraised value is less than the agreed upon price of the home — have become more common. This doesn’t necessarily kill the deal, but addressing it can take time. In fact, according to NAR, 21 percent of all delayed contracts are delayed due to appraisal issues.
“We continue to see some low appraisals,” Harris says. “This is typically when there are multiple bids on a property, so I always try to make sure the buyer is prepared to pay the difference if the appraisal is low.”
3. The home inspection reveals big problems
After a buyer’s offer is accepted, the next step is usually to get a professional opinion about the condition of the home. Sometimes, these home inspections will uncover serious issues — the need for a new roof or a major plumbing problem, for example. In this situation, the buyer will typically ask the seller to do something to address the issue, like repair it or offer a reduction in price to cover the expense of the repair. That back-and-forth negotiation can require the closing date to be pushed back.
While Harris says she would never recommend waiving a home inspection, the home inspection contingency “seems to be the most popular area to initially target” in order to make an offer more competitive, she says.
“A great way for a seller to offset this challenge is to get a pre-listing inspection,” Harris says. “Buyers can also tackle this hurdle by trying to pre-schedule their inspection so that it’s essentially completed the day they go under contract. This way, they are only out the $500 to $600 for the inspection, versus thousands in earnest money.”
4. Issues with the title search
Before handing over a sizable chunk of money to purchase a home, buyers need to make sure that the person they’re buying from actually has the right to sell the property. This happens in the form of a title search. The title search can uncover a wide range of challenges, such as previous owners still having a claim to the home, unpaid property taxes or liens against the home. These legal issues can be difficult to untangle. Around 11 percent of delayed closings are due to title and deed issues, according to NAR.
5. Contingency failures
Many agreements to purchase a home include contingencies in the contract, which allow the buyer or the seller to cancel the deal if certain things do not happen. (In other words, the sale is contingent on these criteria being met.) For example, a buyer might include the contingency that he or she must be able to sell their current home prior to purchasing the new one. If the buyer does not manage to sell their property within the agreed-upon timeframe — ie, if that contingency fails to be met — the deal will fall through.
When someone is buying a home, they need to be able to protect their investment. Thus, another common contingency involves the ability to secure homeowners insurance. Insurance isn’t guaranteed: For example, if a home is located in an area with serious risk of wildfires, flooding or other natural disasters, finding a company to issue a new policy can be difficult. Appraisal and inspection contingencies are also common.
Whether you’re buying or selling a home, the process can be stressful. A delayed closing just makes things worse. While some issues are out of your control — you have no say over the market’s interest rate fluctuations, for example — the best way to avoid problems is to follow the guidance from the experts on your team. Your real estate agent, your attorney and your mortgage lender can help you check off all the boxes to make sure you’re doing everything possible to reach the finish line on schedule.