Jim Randel: A new closing dynamic
January 19, 2009 by admin
In the real estate transactions world, we are operating in new territory. Buyers are nervous (“are we overpaying?”). Lenders are skittish (“are we overfinancing?”). Appraisers are ultra-conservative. And so on.
It is for this reason that I have been suggesting to my clients for more than a year that the period between contract and closing – usually a month or more – should be contracted to a few weeks at most. My point is that too much time is the enemy, and that as air will fill a vacuum, problems can arise in a deal when there is too much unfilled space (in time).
Recently I have been involved with two large closings where the gap between contract and closing was a few weeks too long. In one case the lender, worried about the economy, retrenched on its agreed-to loan amount (falling back on conditional language in the commitment letter). As a result, the buyer had to find another several hundred thousand dollars of equity to consummate the transaction.
In another case, where the period between contract and closing was too long (I represented the seller) a buyer got cold feet and threatened to forfeit its deposit and walk from the deal. Since my client had already committed to purchase another property, it had no choice but to renegotiate the contract price with the buyer (and take a hit on the sales price).
I am today negotiating two new contracts (again representing sellers) and in both cases we are negotiating the shortest possible period between contract and closing. As these are both residential properties, the issue that presents itself is how quickly the seller can pack up and leave. My recommendation is that we attempt to structure an agreement with the buyer where my client can stay in possession for a few weeks post-closing to move out of the house. This may require an escrow or other protection to the buyer (that the seller will leave the house in good condition). But, I am OK with that so long as the escrow agreement is worded fairly.
Why should a buyer object to a quick closing? Presumably there is a meeting of the minds on the terms. The banks today can close quickly if they want to (note that in one of the above examples it was the buyer who got hurt by the delay). It seems to me that if the seller and buyer are in agreement on all terms, then the mechanics of the closing should never delay the manifestation of the parties’ desire and intent, i.e. money for deed.
The world is different today. It’s hard enough to get a deal done. Putting an artificially long period between contract (meeting of the minds) and closing (the mechanics of the transfer) makes no sense.
Jim Randel is the author of the just-released book, The Skinny on Willpower (Clover Leaf, 2008).