Sellers see cash as the surest option, but there’s still a lot that can go wrong. Top experts explain the most common delays in the cash closing process. —-
If you’re looking to buy a home, you’ve probably heard that cash is kind of a big deal in real estate. All-cash offers are beloved by sellers and real estate agents alike — and they’re more than three times as likely to be chosen from the pack. But is the cash closing process always seamless?
Why do sellers love cash so much? Because it’s fast. A cash deal can close in as little as 7 days, while financed home purchases tend to take an average of 45 days to close. And if you add a home sale contingency into the mix (that is, if you need to sell your current home before you can buy a new one), closing the deal can take even longer.
With a mortgage, there are all kinds of things that can go wrong to delay closing — financing issues and appraisals coming in low are two of the most common.
By contrast, sellers see cash as a sure thing … but is it? Not always! Cash purchases, too, can get held up by a range of potential delays.
We talked to two top real estate agents to walk us through what can hold up even an all-cash deal. Here’s what you need to know.
1. Financing issues
“Wait a minute,” you’re probably thinking. “Why would you run into financing issues if you’re buying a home in cash?”
Financing can still cause a delay, even when it comes to cash! Maybe you aren’t using a loan, but you can still run into cash flow issues.
For example, let’s say the market crashes, and your 401(k) loses a huge amount of value overnight. You were planning to take money out of the account to cover your cash purchase. Suddenly, you have less money than you realized. This can be an issue when using investments in general — things can change quickly!
Another issue that can come up is when a buyer wires money to the wrong account (imagine the horror!). This can hold up the deal while the situation is investigated and resolved by the financial institutions involved. And unfortunately, in some cases, the money may not be recoverable, putting the deal in jeopardy entirely.
Wiring money can take time more time than buyers realize
Wiring can take longer than some buyers realize, and the timing depends on the financial institution.
“People think that a wire from their financial institution — it might be a stock trading institution or a foreign bank — they assume that all wire transfers take the same amount of time,” reveals Jordan Clarke, a top California agent who completes 13% more transactions than the average Carlsbad agent.
“I’ve had clients wire money from China, and then be surprised that it takes 7 days to get here. Or, even from a brokerage trading house, that it takes 10 or 14 days once the wire’s initiated for the money to get to the escrow company.”
Needless to say, if you told the seller the money would be available on say, June 14, and you initiate the wire transfer on that day — only to find out it could take two weeks for the money to arrive — it could put your closing timeline in jeopardy.
And since closing quickly is one of the biggest perks of having a cash offer in the first place, it’s a good idea to make sure your cash can clear in time to stay on the seller’s timeline.
Make sure to check with your financial institutions to ask how long wire transfers typically take. You don’t want a simple oversight to hold up the deal on your dream home.
2. Problems come up during inspection
One of the big benefits of cash that’s constantly touted is that it allows you to remove contingencies from the deal.
Contingencies are clauses in real estate contracts stipulating that certain conditions must be met before the deal can close.
Real estate contract contingencies are commonly associated with getting a mortgage, as lenders tend to do their due diligence on a property before they’ll put up the money for it. Financing and appraisal contingencies give the buyer an out if their lender determines that it will not finance the property, based either on the loan underwriting or the results of the appraisal.
For example, a financing contingency is typical for those using a mortgage, and it basically says the buyer’s financing has to clear before the transaction can be completed. Makes sense, right?
With cash, buyers are able to waive common contingencies, making the deal smoother and faster (not to mention sweeter for the seller).
However, an inspection contingency will often be used by any buyer, whether they’re using financing or paying cash. An inspection contingency basically states that if material issues come up during the inspection, the buyer can back out of the contract (or they have the option to try to renegotiate with the seller).
Home inspections are typically optional, though they’re very common — and encouraged, with 95% of buyers getting one.
Waiving the inspection contingency might seem like a great way to strengthen your offer and hurry the deal along, but it can put you at risk, and it’s not a tactic that’s generally recommended by experienced real estate agents (or anyone in the industry, really).
All of that is to say: You’ll probably want an inspection and an inspection contingency, even if you’re paying in cash. But understand that inspections can delay the deal.
For example, let’s say the inspection reveals that your would-be home has substantial foundation issues, or the roof needs replacing, or the electric system is in bad shape and needs to be rewired. These are all major repairs that can add up quickly. And if your offer didn’t reflect these needed repairs, you could end up overpaying for the home.
Depending on how negotiable the seller is, or how willing they are to take on repairs, these findings could majorly hold up your home purchase.
3. The title isn’t clear
One threshold you’ll have to cross before buying a home is the title search — and you’ll likely have to do a title search whether you’re paying in cash or financing.
With a title search, a title company looks into the property’s title (in other words, who has legal ownership of the home) to make sure there aren’t outstanding liens on it, or taxes owed, or any missing heirs that could threaten your ownership of the home.
Basically, the title search is to make sure that once the home changes hands and belongs to you, no one else can interfere with your claim to it, and only you have the right to sell it.
However important title searches are, they can reveal issues that delay closing.
Clarke explains that title issues can hold up even all-cash deals: “There might be an encumbrance on the property that wasn’t discovered until the very last second that has to be taken care of,” he shares.
4. Issues with recording the deed
Further, Clarke explains, delays can come up while recording the deed to your new home:
“You can have problems down at the recording office, where the paperwork that title sent down wasn’t to the satisfaction of the recording office, which causes a delay,” he adds.
The truth is, these little processes all add up, and they can have a big impact on your final closing timeline if things don’t go as planned.
5. Documentation delays
Documentation issues can and do delay closings from time to time. For example, let’s say the home you’re buying is part of an HOA, yet the seller doesn’t get you the HOA documents you need to review — and sign — before closing. This could hold up the deal.
Further, escrow companies tend to handle a lot of the documentation and paperwork on home purchases. This is another area where errors can happen, prolonging your closing timeline.
“You can have escrow work not completed in time by either side, or even the escrow company themselves,” Clarke cautions.
6. Taxes are past due
Tax issues can also cause closing delays, even with a cash deal. Basically, if you owe the government taxes, or you owe child support, it can interfere with your ability to close.
“If buyers have any tax lawsuits, or taxes they haven’t paid, or child support that pops up on their credit report,” it can cause closing delays, according to Ramon Sanchez, top California agent who works with over 77% more single-family homes than the average Long Beach agent.
“If that pops up in your SI — which is your statement of information — that’s a red flag. You need to rectify that before you can close a deal,” he explains.
7. Problems emerge at final walkthrough
The final walkthrough is often thought of as a formality, but it’s actually pretty important, and it can have repercussions for your closing.
For example, let’s say during the final walkthrough, you notice that several appliances you negotiated to be included in the purchase were removed from the home. Or perhaps when the seller was moving out, they accidentally damaged the brand-new wood floors.
These unexpected findings could cause a delay in your timeline as you work with the seller to resolve any issues that come up during the final walkthrough.
8. Not enough money for closing costs
More than half of buyers are surprised by the amount of their closing costs when it comes time to seal the deal on a new home. Hopefully, you already factored in closing costs — which can tack on between 2% and 5% to your new home’s purchase price.
If you’re paying all-cash, you can avoid lender fees, which should save you some money on closing costs. But even for cash buyers, closing costs can add up to around 3% of the purchase price. And you’ll need to have the cash available at closing.
If you, or the seller, didn’t budget for closing costs, or one of you can’t cover them for whatever reason, it could end up delaying your purchase until the payments get sorted.
9. Tenant issues
If you’re an investor purchasing a rental unit, tenant issues could potentially hold up closing. For example, if you agreed with the seller that the tenants should be out by closing, yet the tenants are still inhabiting the building, that could bring up contract issues.
Tenants have extensive legal protections and are usually allowed to stay in a unit until the lease term is completed. This could cause hiccups when it comes to your closing.
Make sure you carefully understand all the tenant lease agreements and do your due diligence with your agent before buying an occupied rental property.
10. Property survey
A property survey is a document that lays out your property lines and everything that’s included within it — land, structures, natural features, and other noteworthy elements. Think of it as an official map of the property.
Many mortgage companies require property surveys (though they’re not always required). The lender wants to make sure they’re getting what they pay for, and not properly surveying the land could represent a risk to their investment.
For example, the seller may believe their lot is an acre, but a survey could reveal it’s actually 0.75 acres. Or the survey could reveal that the home is actually located on the neighbor’s property, meaning the buyer wouldn’t really own the home! This situation could represent a risk to a lender, and they probably wouldn’t want to make a loan on a home the neighbor technically owns.
Sometimes sellers take it upon themselves to do a survey, but it’s usually at their discretion if they choose to.
If you’re a cash buyer, you can typically choose whether or not to do a survey. Not doing one could represent a risk to your new purchase. But doing a property survey could also potentially delay closing.
For example, if the lot is smaller than you believed it was when you made the offer, you may want to renegotiate with the seller. This could push back your closing date.
But the good news is, the property survey can protect you from making a bad investment, so it still may be a good idea.
Always consult with your agent and make sure you’re doing everything you can to protect yourself and your hard-earned cash.
11. Unforeseen circumstances
Let’s face it: Life isn’t always predictable, and unexpected things can happen. For example, let’s say you get laid off from your job because of the coronavirus. That same week, your car breaks down, and the repair costs add up to more than it’s worth. Now you’re out of a job and you need a new car, all while you’re scheduled to buy a home in cash next week.
At this point, you may no longer think using such a large amount of cash is your best option. What if it takes you a long time to find comparable work? And how will you replace your car?
Perhaps that cash would be better used to give you a cushion while you find work. Depending on your financial situation, maybe you could use some of it as a down payment on a home, and get a mortgage instead.
Of course, if you back out of the deal, you could lose your earnest money deposit, so make sure to weigh your options carefully and talk to your agent should the unexpected happen. A program like HomeLight Cash Offer might help you meet the seller in the middle, presenting a cash offer but still allowing you to finance the purchase as the buyer.
Nobody wants a closing delay, but when it comes to the biggest financial transaction of your life — it’s far better to be safe than sorry!
Header Image Source: (Katie Harp / Unsplash)
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