5 Common Real Estate Closing Day Surprises and How to Deal

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SOURCE: Realtor.com

Areal estate closing is an anxiety-inducing time, even if it goes smoothly. Add something unexpected, and it will throw you for a loop.

I was thrilled when the sellers accepted my offer on a tear-down lot in McLean, VA, the perfect place to build my own “Downton Abbey”–style manor. And the deal went forward without a hitch—that is, until closing day.

Soon after I arrived at the title company’s office on the big day, my real estate agent sheepishly handed me a set of 40-year-old covenants that restricted what I could build on the site. Looking back, I know that I should have smiled politely at the six people gathered and suggested we reconvene later after I’d studied this giant wrench in my plans. But I didn’t want to inconvenience everyone, so I closed the deal.

It was an agita-inducing mistake. Even though those covenants didn’t derail my dream home’s construction, they caused me constant anxiety.

This is not just a concern for those building a home from scratch: For many home buyers, closing day is daunting, and coping with last-minute surprises can be tricky. Some problems are minor and easy to solve; others can wreck a deal. So which are which? Let’s take a look.

Ugly walk-through revelations

The dreaded walk-through is the top reason for surprises on closing day, and for good reason: This final inspection of the home happens the day before your settlement—or even the morning of—so there’s little time to prepare for whatever problems might pop up.

Who knows? A sudden storm could have poured water into the basement, or now that the furniture is all gone, cracks in walls or other flaws may be exposed.

How bad is it? If the problem is serious, like flooding, you should definitely proceed with caution. To avoid this snafu, make sure to inspect a home as thoroughly as possible before your final walk-through to avoid last-minute surprises.

Don’t be shy about asking for another look-see after a big storm to vet for dampness or flooding. But a last-minute discovery of a problem is not necessarily a deal breaker. Just ask the seller to cover the cost of those repairs, and put the funds in escrow. Be sure to come with estimates from professionals on how much those fix-its will cost.

What stays, what goes

Another common issue that crops up during the walk-through is misunderstandings about which items get transferred with the sale. For instance, maybe you loved the seller’s antique stove, ceiling fan, or other household item and assumed it would stay—but you find out the sellers took it with them.

How bad is it? Unless you’re really attached to the item, you may want to let this one slide if you want this deal to go through. The easiest way to avoid these misunderstandings is to delineate in a contract what remains in the house or must be moved out, says Ben Niernberg, executive vice president of business development at Northbrook, IL–based Proper Title, LLC.

“Be very detailed on what’s staying and going,” he says. “Washer, dryer, ceiling fans, fixtures, appliances—be diligent during your initial inspection.” Also, make sure the contract reflects your expectations.

Credit challenges

Even though you were probably approved for a mortgage a month or so earlier, even small changes in your financial picture since then can affect your credit score and create problems up to the moment you close on the property. Changing jobs, applying for a credit card, falling behind in paying bills, even sudden infusions of cash can red-flag your deal.

How bad is it? Pretty bad. If a lender withdraws the offer, you won’t be able to close until you secure another mortgage, which could take weeks. Or, if the lender wants to increase your interest rate, as it usually does in these situations, then you’ll have to decide if you can still afford the purchase.

To head this issue off at the pass, contact your lender the day before closing to discuss and solve any issues that may have turned up. Also, try to avoid making any sudden financial moves in the weeks leading up to the close, like quitting your job or receiving a $10,000 “gift” from a family member to help out with home buying—that could, ironically, throw a wrench into the process.

Real estate closing money transfer misunderstandings

On a real estate closing day, the chief order of business is to transfer funds. Some financial institutions and title companies prefer cashier’s or certified checks; others want funds to be transferred electronically. Show up with the wrong paperwork or account numbers, and you’ll be left scrambling.

How bad is it? This misunderstanding should be nothing more than a speed bump. To avoid it, ask your agent and lender before closing what form of payment is required. Also bring your checkbook to pay for small items that might crop up, like an unpaid electric bill.

Title trouble

A title company—which confirms details about your property such as past ownership, liens, and the aforementioned covenants—could bring up issues on closing day. If that happens to you, don’t be afraid to step back and insist on taking time to digest any details, problems, or stipulations attached to the property.

How bad is it? It depends on what the search turns up. Some problems, like tax liens or a claim on the property from a relative or co-owner, can postpone a real estate closing. Other things, like the covenants I mentioned above, or unpaid HOA dues, may be surprises but not deal breakers. But any and all title defects must be fixed before you can close on the property. It may be frustrating, but when you leap into homeownership, it’s always better to be safe than sorry.

SOURCE: Realtor.com

3 Key Factors Affecting Home Affordability

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Over the past year, a lot of people have been talking about housing affordability and how tight it’s gotten. But just recently, there’s been a little bit of relief on that front. Mortgage rates have gone down since their most recent peak in October. But there’s more to being able to afford a home than just mortgage rates.

To really understand home affordability, you need to look at the combination of three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving.

1. Mortgage Rates

Mortgage rates have come down in recent months. And looking forward, most experts expect them to decline further over the course of the year. Jiayi Xu, an economist at Realtor.com, explains:

“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.”

And even a small change in mortgage rates can have a big impact on your purchasing power, making it easier for you to afford the home you want by reducing your monthly mortgage payment.

2. Home Prices

The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for all the people who want to buy them. According to Lisa Sturtevant, Chief Economist at Bright MLS:

“More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly . . .”

That’s great news for you because it means prices aren’t likely to skyrocket like they did during the pandemic. But it also means it’ll probably cost you more to wait. So, if you’re ready, willing, and able to buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest.

3. Wages

Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time: 

SEE GRAPH HERE

If you look at the blue dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning they’re going up at a higher rate than normal.

Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage. That’s because you don’t have to put as much of your paycheck toward your monthly housing cost.

What This Means for You

Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall.

Bottom Line

If you're thinking about buying a home, it's important to know the main factors impacting affordability are improving. To get the latest updates on each, give me a call or send me a message.

SOURCE: Keeping Current Matters

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