December 8, 2016
Ideally, a closing in real estate should be a formality – a final step in an otherwise smooth process. However, this last part of the transaction can often be complicated, with unexpected problems cropping up. Although REALTORS® do their utmost to ensure that everything is in place so the transaction proceeds smoothly, glitches can occur at the last minute. Three Ontario REALTORS® share insights into what can go wrong and how to mitigate potential crises.
Financial issues are at the root of many closing problems. “Sellers may not have the money to pay off the contracts on rent-to-own items such as the furnace or the hot water tank,” says Sharon Shortt, a Belleville REALTOR® who has been practicing for almost 30 years. “Some sellers may not anticipate mortgage penalties or interest, and these costs can add as much as $10,000 to $15,000 to the bill. Additionally, many sellers don’t realize that secured lines of credit against their home must be paid out when the home is sold.”
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“Buyers may not have obtained recognized mortgage instruments and funds from lenders, or they may not have completed the contingencies needed for mortgage approval prior to closing, which could stop the lender from transferring funds into the lawyer’s trust account,” Shortt adds. “These contingencies include paying off debts such as personal loans or lines of credit, or providing a requested letter that demonstrates proof of employment.”
Financial issues are at the root of many closing problems.
Due to competing offers in the current overheated market, many homes sell well above listing price and without conditions, says Louise Stephens, a Cambridge REALTOR® with 27 years of experience. Defects can be discovered just prior to closing, including water damage from a leak. This could be financially problematic for the buyer, she says. “Properties that are appraised at less than the sold price could possibly result in a buyer frantically scrambling to make up the difference required for the down payment,” says Stephens.
“The buyout cost of the conditional sales contracts can be exorbitant and can cause serious last-minute issues,” she adds. “Managing our clients’ expectations and educating the buyers and sellers throughout the sales process is crucial.”
If a home appraisal is done just before closing rather than during the conditional period, real estate values may have dropped in the interim, says Mark Cadesky, an OREA instructor and Toronto REALTOR® with 22 years of experience. He notes that this scenario can lead to a change in the amount that the mortgage lender is willing to provide.
“If the home is appraised for $50,000 lower than the purchase price, the buyer must make up the difference between the mortgage and the selling price,” he says. “That can put a huge amount of stress on the buyer.”
When working with buyers who are recent immigrants, Cadesky has seen difficulties arise when the clients are selling their property overseas and depending on that money to pay for all or part of their Canadian home. “Often, the money doesn’t arrive in time,” he says. “Especially now, with all the turmoil in the world, getting money into Canada is often a problem. It’s sensible not to have buyers make an offer until the money is physically here, in a Canadian bank.”
When problems arise late in the transaction, REALTORS® work to ensure that the deal remains viable. Shortt recalls selling a house that was actually built on someone else’s property. “This home was on a lot that had been severed off a farm, but the owners hadn’t built the house on the actual acre that was severed,” Shortt says. “We had to do a quitclaim deed to transfer the property to the owners. Luckily, the original owner of the farm was still alive and we were able to get the legal description of the property altered.” [A quitclaim deed is a legal instrument used to transfer interest in real property, used when a property transfers ownership without being sold.]
"People are not always selling their home for happy reasons."
Cadesky tells of a property that was listed on the Multiple Listing Service® that had no survey to verify that the measurement and dimensions were correct. The property backed onto a ravine and after the neighbours were able to provide the buyers with a survey that included their property, it turned out that “the lot was 23 per cent smaller than advertised because the property stopped at the ravine.”
“The deal didn’t close, even though the salesperson had not intended to deceive the buyers,” says Cadesky. Such situations are a reminder that REALTORS® must verify facts, he notes.
Working with seniors who are selling their homes can also pose unique challenges as closing day draws near, Stephens says.
“The seller may be experiencing great anxiety if they’re an empty nester, downsizing or moving to a retirement home,” Stephens says. “In that case, REALTORS® must be empathetic and understanding. We can recommend experts to help them sell their furniture and antiques or to address other issues they may have.”
Empathy is a valuable trait for dealing with all clients at closing, Stephens says. “People are not always selling their home for happy reasons,” she says. “We may be dealing with a client who has experienced a divorce or death in the family. It’s important for us to show them that we’re trying to understand what they’re going through.”
Once all parties have agreed to an offer, the work of a REALTOR® is still not done, Cadesky adds. He suggests keeping on top of the next steps: knowing the dates the conditions are due and making sure the clients know about closing costs and the money they’ll need to have on hand at closing. For the seller, this includes being aware of mortgage penalties, interest adjustments and tax on the real estate commission. In turn, brokers and salespeople should remind the buyers that they may have to pay land transfer tax.
“Add to your calendar all due dates on each of your transactions and verify that everything is done,” he says. “Don’t just file the paperwork away; make sure everything is completed and get proof of completion. Be clear with your clients about the money they’ll need to have for closing – and that means everything.”
Tips for Smooth Closings:
- Make sure the sellers leave keys, garage remotes, warranties and appliance manuals; be sure the property is clean and presentable.
- Make sure buyers have all their financing in place and arrange in the APS for a final walk-through with them.
- Do your due diligence, discuss potential issues before they arise and stay involved.
- New salespeople should ask their broker of record to check documents before they’re submitted to make sure nothing gets missed.
- Keep in touch with your client’s lawyer to ensure everything is on track.
- Always double check your work. The devil is in the details.
Story by Elaine Smith..
Sources: Mark Cadesky, Sharon Shortt, Louise Stephens.
Editorial Policy: The REALTOR® EDGE newsletter is produced 11 times a year by the Ontario Real Estate Association. The newsletter aims to provide practical and useful news and information about the real estate industry to members of the association. The opinions expressed in the newsletter are not necessarily those of the publisher. The newsletter welcomes submissions from the real estate community, including letters to the editor, opinion pieces, events and news. The newsletter reserves the right to edit, based on space restrictions and/or suitability, and/or to refuse submitted material for inclusion in the newsletter without reason. All rights reserved. Reproduction in whole or in part without the express written permission of the publisher, OREA, is prohibited. Contents are copyright of the Ontario Real Estate Association.
Editor: Mary Ann Gratton
Contributors to this issue: Elaine Smith, Merv Burgard, Mary Ann Gratton.
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