December 17, 2020
Selling your home is a major undertaking, and there are many tasks required to move from contract to closing. If you take your eye off the ball, a lot that’s preventable can go wrong. Heed these reminders to prevent your home sale from coming to a screeching halt.
It’s All in the Pricing: Make Decisions Logically, Not Emotionally
2020 has been an epic year for the suburban New Jersey real estate market as city dwellers flock to the suburbs, in large part because of COVID-19. The increase in prospective buyers led to bidding wars which in turn led to many houses selling for tens of thousands of dollars (sometimes more!) over the listing price. Higher than normal pricing worked for sellers if their buyers were purchasing without a mortgage but against them when buyers needed to borrow to complete the sale. Because comparable pre-Covid sales could not support the high selling price, in many cases a lender’s appraisal did not match the agreed upon purchase price. This puts the parties in a position of having to scuttle the deal or renegotiate the purchase price if a buyer cannot or is unwilling to pony up the extra cash or restructure the terms of their financing.
It’s important to remember that price is a reflection of market circumstances, past sale performance on comparable properties and what the current lending market will bear. You must temper the excitement of bidding war reality and bring your house to market at a fair and reasonable price. Pricing your home is one situation where following just your pocketbook can get you into trouble and leave you holding the bag on what you thought was a done deal.
Freeze Your Equity Line
Unlike a conventional mortgage, a home equity line is like a credit card that can be used by a homeowner to make purchases that have no relationship to the property. However, the line of credit is secured by the property and the bank that extends the credit has a lien on the property as a means of insuring they are paid back.
Although the proceeds of your sale can be used to pay off your home equity loan balance at closing, the title company and buyer’s attorney will require that the line has been blocked or frozen from future use well in advance of closing. This prevents a seller from making a last minute, high-price purchase which is not reflected in the payoff amount and prevents the release of the bank’s lien. It often takes banks weeks to issue formal confirmation that a home equity line has been frozen. And while your attorney may be able to obtain the payoff amount, she will not be able freeze your home equity line for you. To avoid closing delays, homeowners should request a “freeze letter” well in advance of closing.
Dig out the Paperwork: Poor Recordkeeping Could Get You Into Hot Water
Decreasing interest rates have caused many homeowners to refinance their mortgages, and you may be one of them. In any refinance or lender change, documentation is required at the conclusion of each loan to verify that the loan has been properly discharged. It’s wise to have these documents on hand to move your real estate deal forward. Left undone, a title search may reveal undischarged liens on your property and, once again, prevent your buyer from getting clear title. This is another potential obstacle that can be prevented by keeping records related to all refinancing and associated loan payoffs through your period of ownership.
Cover Your Bases: Get the Necessary Certificates From Your Town
Two key municipal certificates may be required to move your closing to final: the fire inspection certificate that confirms your fire alarm system, carbon monoxide warning system and fire extinguisher are functioning properly; and a certificate of occupancy. Failure to schedule inspections confirming that everything is up to speed can delay your closing. Your realtors typically will arrange these inspections, procure the documents and deliver them to your attorney in advance of closing. If, however, you’ve sold your house on your own, you will be responsible for arranging the inspections and getting the documents. No documents, no closing. So make sure these items are on your closing preparation checklist, and this includes reaching out to your realtor to make sure they’ve taken care of this detail as well.
The Past Can Haunt You: Disclosures and Permits are Necessary to Complete the Sale
If you’re like many homeowners, you’ve likely made improvements to your home during the time you lived there. Relatively minor renovations, like replacing flooring or countertops, can generally be done without obtaining a permit from your local municipality. But major projects like a new roof, an addition or other structural work, electrical or duct work, water heater or HVAC replacement may require a permit prior to getting started. The permit is more than a rubber stamp. The permit means that your town knows that the work is being done and inspected the work upon completion of the project to confirm it has been done to code. You should file an Open Public Records Act (OPRA) request with your town’s building department when you list your home to confirm that all permitted work has been properly closed. If your prospective buyers find an open permit first, it may be difficult for you to schedule the appropriate town inspections to get the permit closed before your scheduled closing.
Be Ready for the Final Walkthrough: Do What You Say
The final walkthrough is the inspection that takes place a day or two before closing. The walkthrough is designed to make sure that repairs negotiated in the original home inspection have been completed, that all major mechanical systems are still working properly, and that the items you committed to leaving for the buyer in the contract (e.g., refrigerator, washing machine, a wall-mounted TV, etc.) are still in the home. Your house must also be in the same condition it was when you signed the contract with the buyer and there can be no physical damage from the move.
During the final walkthrough the buyer makes certain that all repairs negotiated in the original home inspection have been completed. Typically, receipts or other documentation of completed remediations are turned over to your attorney following your receiving an inspection checklist and negotiation on the items that will be completed. Forgetting to actually complete an inspection item or shortcutting the solution by completing it sloppily can cause your buyer to put the brakes on closing. Failure or forgetfulness in doing what has been required in the home inspection can delay closing and how long the delay or whether the deal will be canceled will depend on the magnitude of the issues involved. Alternately, you may have to make a financial concession to the buyer which lessens your profit. Money may also be held in escrow until the appropriate remediations are made. But if you and the buyer can’t reach agreement, your closing stands the risk of delay. And because omissions such as these may interfere with the trust with which your buyer approaches the deal, you risk your sale being terminated.
It’s Not Over Till It’s Over
When it comes to selling your home, no truer words were ever spoken. If you want to get from contract to closing, you need to cover all your bases. Think reasonably. Be on top of every detail. Follow through on everything you say. It’s only then that you can be certain that you have done everything you could to ensure a successful sale experience and enjoy the freedom to move on to your new home.
At Phelan, Frantz, Ohlig & Wegbreit LLC, we understand that selling your home is a huge and important undertaking. We are here to guide you in your decision-making and ensure that you complete all the proper steps that lead to a successful sale.
Call us at 908.232.2244 and enjoy the seamless selling experience that will ready you for your next passage.