Anyone who has bought or sold a home in the last 12 months can relate to the frustrations of closing delays. They can happen for a variety of reasons, mostly related to lender guidelines. Unfortunately, the buyers and sellers have no influence on how and when the money is disbursed. Therefore, we’re all at the mercy of whatever the bank says. Worst of all, the underwriter (who reviews the file days before the closing) is often times the one that causes the delays by requesting additional paperwork.
But you can take steps to keep timing in your favor. Here are some ways to protect yourself from closing delays before they happen.
- Don’t schedule simultaneous closings. If you’re selling a previous home while also purchasing a new one, you may want to think twice before scheduling both closings on the same day. Instead, give yourself a 7-10 day window for potential delays. Even if it cost you a hundred extra dollars, it beats the stress of rescheduling movers and spending a night in a hotel.
- Get a larger earnest deposit. I am amazed at how little buyers are able to offer as earnest money in transactions. I would suggest being prepared with a minimum of 1% of the purchase price and if you’re giving possessions at closing, I would double that. Buyers will behave differently when they have a significant investment at stake.
- Negotiate how closing delays will be handled before you sign a contract. Banks will charge buyers a penalty for not closing on time. Sellers can do the same. Depending on the price of the home, $20-50 per day is a reasonable request.
- Recognize trouble early. When a buyer and/or their lender don’t meet the deadlines for the pre-approval or the loan commitment, start planning for a potential delay. It is much worse when you are blindsided at the last minute and have no time to the plan.
- Always have a plan B. Give yourself some flexibility on your move date. That way, if your first closing gets delay you have options for timing on your purchase.
You cannot eliminate your risk, but proper planning and preparation will greatly reduce the chances of having unexpected and stressful surprises. Good luck with your transactions.