Why there is no “LATE” in Real Estate

no crying in baseballWe all remember Tom Hanks in “A League of Their Own” and that great line “There’s no CRYING in Baseball!” That doesn’t mean it NEVER happens, that means it is not SUPPOSED to happen.

When it DOES happen it is usually a Joe Biden sized BFD!

Same goes for a Late Closing in Residential Real Estate transactions…with some exceptions. In a normal Residential Real Estate Contract, you put down Earnest Money WHICH YOU ARE SUPPOSED TO LOSE under certain conditions. People often don’t know this OR they forget this.

Most often agents probably don’t say “Oh, by the way you may lose that $10,000” while the buyer is writing the check. They just “assume” the buyer knows what Earnest Money is. Telling people they may lose $10,000 is just not something most agents like to say when someone is making an offer on a house. BUT if the day the buyer may lose it, is the first time they’ve heard of that possibility, the *chocolate* is going to hit the fan…and often does!

Earnest Money is the amount you ARE WILLING to lose if…

If you COULD NOT LOSE YOUR EARNEST MONEY we would not require Earnest Money as a “BINDER” in most Residential Real Estate Transactions. Still the minute the “you might lose your Earnest Money if…” situation comes up, people act like no one should ever utter those words. Odd…but true.

Buyers write those big, fat Earnest Money Checks without much thought to LOSING that money…until faced with the words “Your Earnest Money is NOW in Jeopardy”. Late closings enter that realm of possibility. Often that can turn into a “Let’s SHOOT the Messenger” knee-jerk reaction. But the reality is…someone, sometimes, has to be the bearer of that bad news.

So why IS the main rule  “No LATE in Real Estate

24 thoughts on “Why there is no “LATE” in Real Estate

  1. Two tips:

    Have your loan mostly lined up before your offer.
    Get the opiniopn of the loan originator on how long it might take to close the loan. We look for obstacles, both known and anticipated, and adjust how long it may take to close.

    Don’t just assume that 30 days is enough, what with stricter underwriting guidelines and additional regulations. Sure it’s possible, and even shorter periods can be achieved under ideal circumstances, but it’s wise to leave wiggle room in the schedule, rather than risk the earnest money and disruption in people’s lives that late closings can cause.

    • Paying attention to how many business days vs calendar days are involved is important as well. In the case that sponsored this post from the comments in another post, the buyer indicated that the agent had written the offer with more loan processing time, but it was multiple offers and the seller countered with the shorter time.

      Basically the short fuse was a condition of offer acceptance by the seller and not the buyer or the buyer agent’s doing. That’s why the buyer thinking that since the place they were buying was already vacant, and so an extension should not be a big deal, didn’t make sense. If the sellers didn’t need the money on the date they requested, they would not likely have countered with a specific, earlier date.

      Closing date is often an important issue as to whether a buyer gets the property and for how much. So making it longer is not always a good and available option considering the other factors that are affected.

      A few times I wrote in “30 business days” instead of 30 days, and that has worked better than asking for “45 days”.

  2. 30 business days would be a clever way to do it. That is nearly an effective 45 total days, assuming 5 business days a week.

    We originators can usually accomodate a faster closing, but the elements have to be lined up beforehand: easily documented income and employment, no significant credit issues, adequate down payment and assets, and a decent property. If one of those elements is sketchy, there needs to be time to address it.

    And yes, there are still buyers out there that qualify for buying a home with less than the above perfect credit attributes. It just takes longer to get an approval and complete the loan. Seems fair that this is the case…the lender is taking a risk (of having to keep the loan on their books), and wants to be sure to mitigate that risk as thoroughly as possible.

    • “If one of those elements is sketchy, there needs to be time to address it.”

      And that is exactly the same reason why asking for 45 days can be problematic. Everyone will assume that means potential trouble ahead, so it should not be done without thoughtful consideration of the unintended consequence.

      I usually switch to “30 business days” when we run into Thankgsgiving, Christmas and New Years being part of the time frame, which wreaks havoc on lenders when trying to process in 30 calendar days. Since that is true for both clean and sketchy borrowing credentials alike, I have yet to have any problems doing it that way during the holidays.

      The only times in recent history I have had problems with closing “on time” for a buyer client, it has not been about 30 days vs 45 to process. It was about the property itself. One needed a new roof to close, two needed to be built to close. To me, if the property is the issue, that is the seller’s “fault”, if you will, and not a reflection on the buyer or the lender in any way. Thus the seller would be hard pressed to justify not granting an extension, or penalizing the buyer with a per diem.

      I should have added, “If you are going to be late…find SOME way…to make it the seller’s fault”. Works for me.

  3. Everything should be put in black and white so that both parties will be responsible for whatever consequences the deal will have in the future. An agreement or contract will ensure the protection of both seller and buyer.

  4. Pingback: HUD Homes: Vandalism On the Rise – Buyers Be Aware of Your Responsibilities « John Murphy Reports

  5. You have to account for 3rd party and seller delays.

    Closing dates are flexible, period. Agents need to get it, buyers need to get it and sellers need to get it. I close a week early more often than I close a week late, but it still happens.

    As a lender, I do everything in my power to meet a scheduled closing date. However, I do renovation loans and mostly REO’s. I wait on title’s for 4 or 5 weeks sometimes. Sometimes there are tenants in the house that won’t let the appraiser in. Sometimes borrower’s don’t deliver documentation in time. Sometimes the IRS kicks the 4506T. Sometimes borrowers pick contractors for their renovation loan that lied about being licensed and need to be replaced. Stuff happens.

    The KEY to a successful closing is a Realtor, Lender and Buyer that remain COOL during the process, be honest with each other and work together.

  6. From an agent standpoint, if there is another buyer in the wings…the loan being late puts the buyer’s ability to get that house at risk along with their Earnest Money. What if there is a cash buyer who wants that same house? Maybe they came along a week after the property was in escrow.

    Why should the seller wait 5 to 6 weeks because the lender didn’t get title…when he can just turn around and sell it to the cash buyer instead?

    I understand that as the lender, you do not see the seller’s considerations. But agents don’t have that viewpoint. If the buyer can’t get their rehab loan on time, and there is a cash buyer ready to close…well, if you were the seller, what would you do?

    You say “the key to a successful closing is…” to a seller the key to a successful closing may be a different buyer without so much red tape.

  7. What offer to accept is up to the seller and the listing agent. If they accept an offer with financing attached to it then they need they have to deliver the goods needed for that offer to work and be prepared for red tape.

    If you have equal offers and one is cash then who wouldn’t take the cash? Cash buyers represent less than a third of all transactions though. The majority of sellers will accept an offer with financing attached.

    • Jonathan,

      The cash buyer came while the property was in escrow. The day of closing the seller has to:

      1) Extend the closing on the contract in escrow

      2) Switch to the cash buyer

      If the buyer needs a defined 1 to 2 day extension, the file is out of underwriting, and the docs are due at escrow within 24 hours…it would be in bad faith not to grant that 1 to 2 day extension. But if they asked for an additional two weeks on the day of closing…then the cash buyer can probably close in that amount of time.

      There is no obligation for a seller to grant an extension. The decision whether or not to do so comes at the time of the extension request. If the lender is 5 to 6 weeks behind schedule because they didn’t get title for 5 or 6 weeks (as you stated)…not likely the seller isn’t going to switch to the newly appeared cash buyer…and rightly so.

      The commitment of the contract is to the day of closing…anything beyond the day of closing is a new commitment…or not. If the loan is not even out of underwriting by closing day, most agents and sellers would put the property back on market unless there is a very good reason not to do so.

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