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The Advantage of Closing Real Estate Deals Early

Written by Posted On Thursday, 18 May 2017 17:13

When it comes to real estate transactions, expectations related to the closing will differ. Since most home buyers will need mortgage financing for the purpose of acquiring residential property, they know that final approval could take some time and thus they prefer closing as early as possible. Not all homeowners who put their properties on the market will want a closing to take place as soon as possible; in a sellers' market, there is value in holding up the sale as more lucrative bids could materialize. Still, there are other arguments in favor of closing real estate transactions earlier than later.


Accurate Appraisals


In the hottest American real estate markets, home appraisals can make a major difference in terms of home sales. It is in everyone's best interest to get an accurate valuation of the subject property: sellers do not want a low appraisal, particularly if their profit margin is contingent upon paying off an existing mortgage. In the case of buyers, a higher appraisal means more initial equity; this is an ideal situation for those who are thinking about cashing in a few years down the line.


If the appraisal ordered by the mortgage lender comes in high enough to motivate both buyers and sellers, one of the best strategies would be to schedule a closing as early as possible. Even the lender will benefit from a high appraisal as it would make the deal more appealing to institutional investors such as Fannie Mae, Freddie Mac and investment banking firms. There is always a chance that appraisals can come in lower at a later day; a sellers' market could start making headlines as a hotbed for unreasonable speculation or developers may break ground on new construction projects located in a nearby competing market.


Avoiding Title Issues


Although the initial title search may come in clear or with a single encumbrance that can be easily handled, another issue may later come up to hold up the closing. When this happens, it is usually because an aggrieved party learns that the subject property has been listed and quickly moves to file a lien before the sale is finalized. This situation may be prompted by a zealous creditor, a contractor who files a late mechanic's lien or by a former spouse in California who want to pay the law firm that handled his or her divorce.


The End of the Month Conundrum


Buyers who are paying rent will often try to push the closing at the end of the month for the purpose of getting the most out of their final rent payments. There is also the issue of interest paid in arrears, which is universally demanded by mortgage lenders; in some cases, buyers may be forced to bring cash to the closing table to pay for this interest.


Sellers who take the FSBO route should accommodate buyers as much as possible, and this may include agreeing to a closing later at the end of the month; however, there is valid point to be made for closing early: some mortgage lenders actually encourage buyers to close early in the month by offering a credit that effectively eliminates the need to bring cash to the table.


There is a clear incentive for banks, escrow agents, buyers, sellers, and appraisers to close in the early part of the month. Since first-time home buyers are more likely to be renters trying to milk the final payment made to their landlords, mortgage processors, appraisers and closing agents tend to be busier and more likely to make mistakes at the end of the month. This means that unforeseen delays are bound to happen when closings are scheduled later than when they take place earlier.


In the end, sellers should consider the facts above when they are negotiating the closing date with buyers. An earlier closing could be more beneficial to all parties, not just for sellers.

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Sofia Belnap

Sophia is passionate about writing in the real estate and home improvement spaces. When Sophia is not writing she loves reading, cooking, and spending time with friends and family.

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