We could probably hammer out a “top five reasons why closings get delayed” list in no time, but without the proper context, none of it means anything.
Why closings are delayed is only a small part of the discussion.
How that happens, and what happens thereafter, are equally as important.
How Do Closing Dates Work?
Consider that the “closing date” is a negotiable point of any Agreement of Purchase & Sale and can be moved forwards or backwards by either buyer or seller, in the course of a negotiation. Just as a buyer and seller might negotiate the price, deposit, conditions, or inclusion of the living room couch, the same is true of the date on which the property transfers from the seller to the buyer.
While the buyer and seller can mutually agree to alter any part of the APS, once the Agreement of Purchase & Sale is firm, the closing date is set in stone and must be adhered to in the same way that the buyer must pay the agreed upon sale price, and the seller must leave behind the living room sofa, as included in the APS.
If a closing is scheduled for Tuesday, August 31st as per the Agreement of Purchase & Sale, the buyer has made an undertaking to provide the necessary funds to the seller on that date, just as the seller has made an undertaking to provide clean title to the property in exchange for the funds.
If either party cannot fulfill their obligation to close on that date, then the party is in breach of contract.
Do you have more questions about buying or selling? Learn more about the process with these posts next:
- Should Sellers Get a Pre-Listing Home Inspection?
- What to Expect at a House Viewing
- What is Dual Agency in Real Estate?
What Happens When Someone Breaches the Contract?
Let’s say the buyer isn’t able to close on Tuesday, August 31st. What happens next?
Well, as a lawyer once told me, “The world continues to spin the next day.”
He means to say that it’s business as usual, and the world hasn’t ended. The path forward for both parties hasn’t been decided, and they simply both move on to the next steps.
How those parties proceed, whether it’s through discussion or litigation, is a topic for another day.
But our question remains:
Why do some closings get delayed? Or why do some closings not happen at all?
1) Financing.
The most common reason for a sale not to close is issues with the buyer’s financing.
Some buyers aren’t able to obtain financing, and spend the weeks leading up to the scheduled closing date frantically running around, looking for other options, rather than letting the seller and the seller’s lawyer know in advance.
Some buyers aren’t able to obtain suitable financing, ie. the terms and conditions that they want or require, and thus they attempt to delay closing so that they can continue to shop for a more favourable deal.
Then often times, the issue isn’t with the borrowed funds (ie. mortgage from a lender), but rather the buyer doesn’t have enough cash on hand for the down payment. These funds could be tied up in long-term investments, or they could be insufficient due to a change in the equities markets.
For more blogs about mortgages, down payments, and financing, check out these posts next:
- What is a Vendor Take-Back Mortgage?
- How to Get a Mortgage with Little or No Credit
- What is a Bridge Loan and When Will I Need One?
2) Title Insurance.
In some cases, a lender won’t advance funds unless the buyer has obtained title insurance, and provided proof of the policy to the lender.
While this point could go above in #1, since it does have to do with the buyer not obtaining financing, it’s a good reminder for readers to understand the need for title insurance.
3) Property Insurance.
As with title insurance, most lenders will lot advance funds unless they see that the buyer has secured a property insurance policy on the home.
The lender needs to be assured that if something happens to the property, their loan won’t be in jeopardy if the value of the home diminishes as the result of the buyer not being able to remedy damage not covered by insurance.
4) Issue With Title.
The seller must provide a clean title to the buyer in order for the buyer to close, not only because it’s written in the Agreement of Purchase & Sale, but also because, as we noted before, lenders will often insist upon it.
There can’t be any issues with liens or encumbrances on the property.
The property cannot have any outstanding work orders, notice of deficiency, or open building permits.
If this happens, the buyer might refuse to close, or not be able to.
A title search is a crucial step in the process.
5) Funds Transfer.
Every so often, the buyer will be ready to close, with funds in hand, and the seller is ready to accept, but there’s an issue with the actual transfer of the funds.
The title cannot transfer unless all conditions of the agreement have been satisfied, and while the buyer might be able to show proof of the funds, without the transfer, the deal will not close.
Funds can be transferred through a variety of electronic methods, and as we all know, technology is far from perfect. Since we no longer offer funds in a duffel bag full of cash, there’s no real “plan-b” if the transfer system that the lawyer is using goes offline for the day.
6) Buyer Refusal.
A good lawyer will tell their buyer client, “The only reason you can purposefully delay closing, and remain within your right to do so, is if there’s an issue with the root of title.”
Having said that, there’s always a buyer out there who decides that they’re not going to close on time – and that they will invite the breach of contract, for reasons that won’t hold up in court.
We can dream up all sorts of reasons.
The buyers don’t like the condition that the sellers left the house.
The buyers wanted debris removed from the backyard and garage, but the seller didn’t do so.
Heck, the sellers could illegally remove the kitchen appliances, contrary to the Agreement of Purchase & Sale, but the law says the buyers have to close, and sue the seller in small claims thereafter.
Buyers will often decide to ignore the law, and invite the breach.
They’re inviting financial chaos into their worlds if and when they do so.
One tool sellers have to protect themselves if buyers change their minds or conditions are not met is the SC Escape Clause or “Sold Conditional with an Escape Clause.”
What To Do If You Think Your Closing Needs to Be Delayed
If you’re a buyer and you think you might not be able to close, let your lawyer know asap.
If you’re a buyer and you don’t want to close, well, that’s a major problem with very little recourse at your disposal, but you should still talk to your lawyer.
If you’re a seller and you feel the buyer might not close, or worse – the buyer has told you they don’t intend to close, then the buyer is in “anticipatory breach,” and you should speak to your lawyer about mitigating damages by listing the house for sale.
The average closing date for a Toronto sale is roughly 60-days, so both buyers and sellers should have ample time to get their affairs in order.
Don’t wait until the last minute.
The minute you have your Agreement of Purchase & Sale in hand, speak to your mortgage broker, your lawyer, and any other stakeholders in the process.
Those 60 days have a way of ticking by very quickly!
Here at Toronto Realty Group, we help buyers and sellers navigate the Toronto real estate market with ease. If you’re thinking about a home purchase or sale, or you just have questions about the market, get in touch today!
Fill out the form on this page, call us at 416.642.2660, or send us an email directly at admin@torontorealtygroup.com.
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