Real estate closings generally require weeks to complete. Even after sellers accept the buyer’s offer, there are many more steps required before ownership of the property officially changes hands. When buyers finance real estate purchases, they must fulfill the requirements of their mortgage lenders.
Typically, buyers must pay for an appraisal of the property and also for an inspection to verify the condition of the property. The reports produced by the professionals conducting appraisals and inspections can affect the success of a residential real estate transaction.
In some cases, issues with such reports can delay a closing or lead to its cancellation. When can a professional’s opinion negatively impact a residential real estate transaction?
When there are major property defects
Sellers listing real property generally need to provide written disclosures about any known issues with the property. Even people selling properties in as-is condition have an obligation to provide a written review of all known concerns about the property.
Lenders need to know that the property is in habitable condition. If the inspection report highlights major issues that the seller did not disclose in the initial listing, the lender may refuse to finance the transaction by funding the mortgage.
When the appraisal comes in low
Lenders need protection from excessive financial exposure. If buyers default on their mortgages, lenders recover the amount they finance by foreclosing on the property. They then sell the property to new buyers to recover the amount the company previously paid.
When an appraisal comes in low, the resulting appraisal gap could prevent the funding of the mortgage. Buyers may need to renegotiate with the seller or cover the difference in value themselves. If they cannot do so, then the lender may refuse to finance the transaction. Such scenarios can cause complications for both buyers and sellers.
Being aware of potential complications that could lead to the cancellation of a closing can be beneficial for both those listing real property and those preparing to purchase a home. Sellers generally need to make honest and thorough disclosures about the property, while buyers need to ensure that they review property conditions carefully and bid reasonable amounts based on local property values and the condition of the property.
Drafting and reviewing real estate documents, including offers and purchase agreements, may be beneficial for those seeking to acquire or sell real estate. The support of an attorney may help people protect themselves and navigate unexpected complications during a residential real estate transaction.