Reader Question: Is our transaction failing? How many days before the scheduled closing, does the buyer’s agent have to present us with the final “letter of commitment?” We want to firm up our plans.
Monty’s Answer: The first place to look for your answer is the contract. Each state has its laws and forms, so there is not a straight answer. Additionally, the document you refer to is rarely, if ever, a total commitment. Most pre-approval, or commitment letters, contain language with a statement in the communication that states the approval is subject to the borrower’s circumstances not changing before the closing. This clause protects the lender from funding a borrower who has changed their financial position.
Additionally, most pre-approved state real estate contracts contain a clause that requires consumers to agree on whether or not time is of the essence concerning dates. Here is the language in the state approved offer-to-purchase in my home state:
TIME IS OF THE ESSENCE
“Time is of the Essence” as to (1) earnest money payment(s); (2) binding acceptance; (3) occupancy; (4) date of closing; (5) contingency Deadlines <STRIKE AS APPLICABLE> and all other dates and Deadlines in this Offer except: If “Time is of the Essence” applies to a date or Deadline, failure to perform by the exact date or Deadline is a breach of contract. If “Time is of the Essence” does not apply to Date or Deadline, Performance within a reasonable time of the date or Deadline is allowed before a breach occurs.”
Typically, lenders, attorneys, real estate agents, appraisers, surveyors, and other vendors are not always able to meet deadlines in real estate transactions. Failure to meet deadlines can occur for a variety of reasons. Surges in sales, shortage of appraisers, unrealistic customer expectations, illness, unknown surprises, and more happen in real estate transactions. Experience has demonstrated that the vast majority of contracts are written to nullify time is of the essence. The closing in most any real estate transaction is uncertain until the seller negotiated the proceeds check.
HOW TO MINIMIZE FAILED TRANSACTION RISK
The seller’s dream is an offer that has a substantial earnest money deposit, no contingencies, all cash, and closing in seven days. While this type of transaction occurs occasionally, they are relatively rare. Almost all of us would not buy a home in this fashion even if we could. Every buyer and seller has unique circumstances that must be satisfied to perfect the transaction.
Many of the consumers’ circumstances require time and outside expertise to satisfy. Some consumers are eliminating obstacles before entering a contract. For example, a seller could have an inspection before they sell, or a buyer could sell the old home first. Here is a link to an article about the pros and cons of selling first.
THE MOST COMMON DEAL KILLERS
There are many reasons the closing file never reaches the table. In no particular order, the most common terminators are financing fails, inspection issues, agent error, and buyer or seller remorse. Deal fatigue is real.