Why Home Purchases Fail to Close (and How to Avert the Snafu)

On closing day, the buyer goes to their agent’s or real estate lawyer’s office, or the office of the settlement agent. The closing agent will give the buyer the papers to sign, one at a time. If you’re a buyer, you’ll be relieved and happy about the ritual. When it’s done, the deed is transferred and recorded in your name.

During the weeks and days leading up to the agreed-upon day, it’s normal to feel some anxiety about the deal potentially falling through. It happens.

Here, we explore the sorts of things that can derail your closing day.

The Closing Date Was Too Optimistic

Mortgage lenders don’t rush to approve loan applicants. And closing depends on a final approval from the lender. It’s common for a loan to take a month and a half to close.

In some cases, a delay leads to a sale falling through, as the contract is normally contingent on the agreed-upon closing date. But it’s normally possible for the parties to agree to a new closing date. The mortgage consultant may work out the problem with the underwriter—or switch to a different loan if need be.

Some sellers will agree to rent the home to the buyer if a final approval is expected but delayed. The buyer is responsible for calling the homeowner’s insurer to cover the home during that time.

The Buyer Needs to Wrap Up the Deed Transfer of a Currently Owned Home

Maybe you’re selling and buying at the same time. Common scenarios are:

• Making the purchase contingent on selling the home you now live in. Parties sometimes withdraw from the deal based on a sale contingency.

• A home of choice contingency in the contract lets the seller out of the deal if the seller is unsuccessful in buying another home.

These situations can delay closings and cause sales to fall through. In some cases, they are saved by creative thinking and good communication on the part of a mortgage consultant or one of the real estate agents.

The Inspection Report Doesn’t Look So Good

The condition of a home you buy needs to measure up to the building codes—as well as your expectations. It has to measure up to your lender’s specifications, too. After all, the home is loan collateral.

Electrical outlets must be modern and safe. Pipes should be intact. The roof and the structural integrity of the home should pass muster.

Just before closing, the buyer visits the home to be bought to take a final walkthrough. That’s the time to check that nothing is left in the home that shouldn’t be there, and everything that should be replaced or repaired is. In other words, the home is in the expected, agreed-upon condition.

What if it’s not? The parties might need to postpone the closing. The seller will have to handle (or give the buyer a discount for) the necessary fixes.  

Problems found in the inspection? Buyers should be aware of the coverage limits when a seller offers to purchase a home warranty for the buyer.

The Survey Raises Surprise Issues

Property surveyors check the site to find out whether the mapped and recorded legal boundaries match what’s on the ground.

The surveyor’s report includes mapping; the location, address, and a detailed description; and other details such as a writeup of significant changes that the owner might have made to the land. Natural features can sometimes change, too.

If the surveyor finds encroachments by the people next door, wrongly placed fences and so forth, the matter will need to be resolved. Until then, closing has to wait.

Problem Discovered in Title Search

Sometimes it turns out that a deed can’t legally be transferred to a buyer.

Perhaps an old loan was never released. Or perhaps a lien obstructs a deed transfer at the eleventh hour.

Maybe there’s a less common reason. A rightful heir got left out of the chain of title. Someone passed the home on improperly. An unexpected legal action ensnares the buyer or seller. A bankruptcy or divorce case leaves property rights unclear. There’s a lawsuit against the homeowner’s association. These are all situations that come up to stop the final loan approval from coming through.

In the hardest cases, homeowners end up at the local court, asking a judge to “quiet” the title and extinguish other possible claims on the property.

The Borrower Does Something to Give the Lender Pause

The borrower submits a whole lot of financial information to the mortgage company. This goes on throughout most of the lead-up to closing. If something changes in the borrower’s finances, the borrower could get a phone call.

Has the borrower’s pay decreased? Is the borrower taking more money out of the bank than usual?

Or maybe the borrower isn’t responding to the mortgage company’s questions. That’s a perfect way to drag out the closing process.

Redfin’s most recent surveys are finding about 14% of deals falling through entirely. Some buyers are walking away from their deals when negotiations don’t work out, or when they have second thoughts about their ability to afford a property in a risky economy.

Appraisal Matters to Be Resolved

If the appraisal report comes back showing that the home doesn’t measure up to the value you agreed to pay, there could be a problem. This rarely happens. Appraisal reports are typically geared to mesh with the lender’s expected value.

In any case, the buyer will want to get the appraisal done promptly after the purchase agreement is made. This gives both sides lead time in case there’s an issue. In rare cases, the parties must renegotiate the home’s price. If a party balks at this point, closing could be delayed or even derailed.

There’s also the closing disclosure from the lender three days prior to closing. Now, the loan estimate is set aside and the actual charges for the buyer at closing are fully laid out. If there’s a mistake on the disclosure, the closing has to wait. Then, the lender has to issue the corrected disclosure, again giving the buyer three days before closing.

It’s Complicated

It’s OK to work with a real estate agent or lawyer to get through this process. This takes some knowledge. Many people have never closed on a home before. An experienced professional is good at anticipating sales contract problems and ironing them out through amendments.

Yes, a surprise could still come up. But if you have professional support, it’s much easier to navigate around the snafu, reschedule the closing day, and end up with the deed.