Residential real estate transactions are incredibly complex. They involve numerous documents that the average person may have a hard time reading. A variety of outside parties have a degree of influence on the transaction. There is a mortgage lender that may impose requirements for appraisals, surveys and inspections. Both the buyer and the seller may work with agents and attorneys. Closings typically take place at title offices.
With so many moving parts, there are many opportunities for things to go drastically wrong. For example, the three issues below might result in the delay or cancellation of a closing.
Inspection issues
Sometimes, professional inspectors find something that casual walkthroughs did not uncover. They might notice latent defects that could generate expenses for the buyer after they take possession. Other times, there could be damage caused to the property when the seller moves out after the inspection. The buyer might discover the issues during their final walk-through of the property. Buyers and sellers may need to negotiate an arrangement to repair property issues or cover those expenses. If they cannot reach an agreement, they may ultimately choose to cancel the closing.
Low appraisals
The real estate market is nothing if not unpredictable. Prices tend to increase over time, but they can fluctuate wildly from one month to the next. Factors ranging from how a neighbor maintains their home to a lack of inventory can affect the fair market value of local real estate. If the appraisal comes in lower than the offered purchase amount, the buyer not may not be able to finance the full cost of the purchase. They either need to make alternate arrangements, negotiate with the seller or cancel the closing.
Challenges with financing
An appraisal gap is not the only situation in which the buyer may not be able to secure a mortgage. Many other issues can prevent even those with pre-approval letters from actually securing the mortgage they need to complete the transaction. A job loss or a layoff might leave the buyer ineligible for financing. Spending too much on their revolving lines of credit to prepare for the move could also affect their eligibility for the mortgage. Anything that affects their income or credit score could impact their ability to finance the transaction.
A canceled real estate transaction can be very frustrating and costly for both parties involved. Negotiating the right terms can help protect buyers and sellers from expenses and lost resources due to a canceled residential real estate transaction. Those who understand the issues that might arise can use that information to protect themselves on the way to the closing table.
