Critical Real Estate Closing Mistakes: How to Avoid Costly Pitfalls

Closing the deal on a real estate transaction is an exciting moment for both buyers and sellers. However, amidst the anticipation, it is essential to proceed with caution and avoid pitfalls that can turn this milestone into a nightmare. In this guide, we’ll explore some critical real estate closing mistakes from our perspective as real estate lawyers and provide actionable tips on how to steer clear of them.

1. Buying and Selling on the Same Day

Closing on the purchase and sale of a residential property involves numerous logistical aspects. Coordinating with multiple parties, including buyers, sellers, lenders, and lawyers, requires meticulous planning. While there are many aspects that are in the control of the parties, there can also be unforeseen complications. Delays in paperwork, last-minute negotiations, or unexpected issues can disrupt the process, causing stress and frustration for all parties involved. Just think about the number of parties who are typically involved at the closing stage:

• Buyer

• Lawyer for the buyer

• Lender for the buyer

• Mover for the buyer

• Seller

• Lawyer for the seller

• Lender for the seller (who needs to be repaid so that they can convey good title to the property)

• Mover for the seller

Added to that, you could have other complicating factors such as parties who may be acting under a power of attorney, multiple parties who need to be paid out from the closing funds, or extra parties, such as parents who need to help children qualify for the mortgage.

While the Agreement of Purchase and Sale makes the matter seem easy, since most Agreements of Purchase and Sale state that the parties have until 6 to close, there are a lot of moving parts on closing day that need to take place in order for that to happen. Now, take that situation and compound it.

Let’s say you need to sell your property first, so that you can close your purchase. It’s all fine and good if your buyer is ready to go first thing in the morning. But what if they also need to sell in order to buy? And what if their buyer needs to sell in order to buy? As you can see, this is a tricky game of dominos and you have no control over where you are in that line of dominos. Each delay in the line of dominos pushes you closer and closer to the closing time, and closer and closer to being in danger of not closing.

At some point, you may be thinking “well, that’s not a big problem, I will just extend the closing date”. What if your mover is booked the next day and all your stuff has to be taken off the truck? What if your lender requires the return of the mortgage funds if there is a delay? Where are you (and possibly your pets) going to stay? And one of the biggest risks, what if the seller of the house you were intending to buy refuses to extend the closing date?

There is this tricky little clause called “time is of the essence“. What that means is that you do not have the unilateral right to require an extension of the closing date. You could be at the mercy of the seller whose house you are trying to buy, even if it is not your fault; just ask 3 Gill Homes!

Does this sound stressful? Let me assure you, it is.

Give yourself some breathing room. Take at least a few days between the sale and the purchase to ensure one transaction has closed successfully before you have to move to the next one. It really doesn’t matter the order, as long as you have a plan. If you can, buy first and arrange a bridge loan. If you need to, sell first and arrange to store your stuff and live somewhere temporarily. You may even be thankful that you have a few days to clean, paint and do some extra planning before moving all your stuff in.

2. Buying and/or Selling on the First or Last Day of the Month

When I went to school in Montreal, moving day was June 30th. If you are a student, and can move with only a car, it’s not so bad. However, in just about every other instance, it can be problematic.

While we are not quite in the same situation in Ontario, June 30th is still a popular closing date. The other popular dates are any first day or last day of the month. Any of those dates can be problematic. If your lawyer is closing multiple deals on the same date, they may not have the same ability to troubleshoot issues that arise on closing. The same thing with your mortgage lender. You will need to ensure that each of your lawyer, mover, and lender all have the capacity to close on the selected date, especially if it is a date that others have already picked. Again, if there are any delays, and you are closing on a popular date, there may be other people in your chain of dominos that can cause issues for you.

Typically, when you are negotiating your Agreement of Purchase and Sale, you do not have the luxury of asking the other party to pause the process to be sure the proposed closing date works for your lawyer, lender, and mover. To ease your stress, pick a closing that is not on the first or last day of the month. You will be glad you did.

3. Buying and/or Selling on a Friday

I get that it is nice to buy your new home on a Friday so that you have the weekend to move, organize, and settle in. Even better when it is a Friday before a long weekend, right? Wrong. What many people fail to realize is that you start paying interest on your funds from the date the lender advances those funds to the lawyer. If there is a delay, and you now close the following week, you are paying interest on money that you did not have and could not use.

The land registry office is not open on the weekend, so there is no option of closing on a Saturday; you will have no choice but to wait for the next business day. Also, you will likely have to deal with other entities such as utility providers and insurance, which may not be open on the weekend and able to help with problems. Finally, what happens if there are issues at your new house? While you may be able to get plumbers, electricians, and furnace/air conditioner service providers on a weekend, you will likely pay a premium for the off-hour service call.

Do yourself a favor and pick a closing date that is other than a Friday (especially if it is a Friday before a long weekend).

Conclusion

Buying or selling a home is often an emotionally charged experience. The pressure of closing on the same day, closing on a popular day, or closing on a Friday can amplify feelings of anxiety and uncertainty. Any unexpected hiccups or delays can exacerbate these emotions, making the process even more challenging for all parties involved. Taking the time to properly plan and execute the transaction can help alleviate some of this stress and ensure a smoother transition for everyone. By exploring alternative closing strategies and allowing for more flexibility in the transaction timeline, buyers and sellers can navigate the process more effectively and achieve a successful outcome.