As a real estate agent, there’s nothing more exciting than closing on a real estate deal. But, sometimes things can go wrong — things which can delay closing or, worse, stop it from happening altogether. Many of these possible scenarios will be completely out of your control — for example, if a buyer loses his/her job and cannot obtain financing. What’s important is that you’re aware of the potential closing issues that you can control. You want to do everything in your power to ensure the closing process goes smoothly, and proactively manage the risks.
So, what are the potential closing issues you could face in real estate?
Agreed Repairs Not Carried Out By the Seller
Failure of the seller to carry out agreed repairs is a fairly common occurrence. These ‘agreements’ are called ‘covenants’ in the contract and are enforceable. They don’t all necessarily pertain to repairs — it could be something as simple as removing junk out of the garage, or ensuring there is a working heater in the home.
Because these covenants are stated in the contract, failure to comply can result in the sale falling through. Ultimately, it’s the seller’s responsibility to ensure these issues are completed. As a seller’s agent, you can be clear in your communications with your client about what’s required, so that settlement is a smooth process.
When Major Issues Are Found at Inspection
Contracts contingent on a building inspection are very common. But, what happens when major issues or flaws with the home are identified during this process? Issues such as termites, infestations of other pests, major leaks, or major structural issues can put a stop to closing. A buyer may decide to back out of the sale because of the sheer scale of repairs needed. And, sellers may find themselves in a position where they need to spend a considerable amount of money on a property they thought they had sold.
When the Bank’s Appraisal Doesn’t Match the Purchase Price
If buyers are purchasing subject to financing and their bank’s appraisal comes in lower than the purchase price, this can cause closing delays. The buyers may need to contribute additional funds towards their deposit, or arrange financing through another lender. Either way, it can mean lengthy delays or, in extreme cases, cancellation of the contract if financing can’t be obtained.
Title issues can affect the closing of a property, the seller could be found to not be the rightful owner of the property, and therefore not able to legally sell the home. Or, another co-owner could be identified who is not a party to the sales contract, for example, a relative of the seller, or a bank, or even the IRS. Foreclosures by the IRS are rare, but they can issue a Federal Tax Lien on a property which requires payment of the tax lien at the time of closing on the sale. Some title issues can postpone closing and others can turn out to be deal breakers.
The Buyer or the Seller Decides Not to Go Ahead
The sales contract details justifiable circumstances where both the buyer and seller can withdraw from the sale. Generally, these clauses will relate to financing, building inspections, agreed repairs and covenants. The buyer may back out of the contract because of an inability to get financing, or if they decide renovations are too much to take on if major flaws are found at the inspection stage.
It’s also common for the seller to back out of the contract — usually, because they receive a better offer or their circumstances change, which causes them to reconsider their decision to move. It depends on the contract, but under certain circumstances, the buyer or the seller may be able to claim damages for failure to close.
As an agent, this is all totally out of your control. You cannot control the buyer’s or the seller’s actions — you can only control your part of the closing process and make sure you do it well.
Potential Agent Closing Issues and How to Avoid Them
Real estate agents play a pivotal role in the closing process. Having systems in place in your business to ensure this process goes smoothly is essential, so you don’t find yourself in hot water and facing a lawsuit because of closing delays or issues. This means ensuring that all paperwork is completed and submitted on time, as required.
When a buyer needs to access the property for inspection purposes, ensure this is arranged in a timely manner to avoid any unnecessary delays. This is especially relevant during the holiday period because, even if you’re out of the office for the holidays, you’ll need to have systems in place to ensure prompt property access whenever necessary.
Being readily available to answer any questions buyers may have about the property and responding to any inquiries quickly can also reduce any risks on your part. Being a good communicator with your sellers, so they understand their responsibilities under the contract — for example, covenants and repairs — will also assist in a smooth transaction.
Protect Yourself Against the Risks
To protect yourself against the risks, make sure you have adequate insurance. CRES Insurance offers customizable policies, so you can choose the coverage that best suits the needs of your real estate business.
To find out more and obtain a quote, contact the CRES team on 800.880.2747 or get an online quote (select your state in the right-hand column to get started.)
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.