Peter Miller on Real Estate: Closing Fast--It Could Happen

With a little extra work on the front end, during the preapproval process, the loan closing period could be drastically reduced.

November 1, 1999

If there's one quality lacking in the typical realty transaction, it's instant gratification. Sign a real estate contract today, and it can take weeks and months to actually close the deal.

The limbo between signing and closing bothers everyone. Buyers have time for remorse, sellers get nervous, and brokers remain checkless until a long list of allied professionals complete their tasks.

The good news is that we're coming to a point where closing time is being substantially reduced. With a little planning and a few electrons, routinely closing in 10 days or even within a week is not unreasonable. Here's how.

Loans. Why every buyer doesn't prequalify is a mystery. Lenders could make a better case for buyers establishing their financial capacity early on if the prequalification-preapproval process were more straightforward.

In too many cases, lenders provide nothing more than a glorified hand-holding letter when applicants seek preapproval. The usual letter isn't an absolute loan commitment, because it typically contains language allowing the lender to again check credit and consider the property's appraisal and survey before proceeding.

Since credit checks are now available in minutes, if not seconds, they should no longer delay closing--assuming the buyer hasn't inconveniently bought a yacht since applying for a loan.

The loan approval process is also held up because of the various safeguards needed to assure that the property exists in habitable condition. For instance, insect damage and home inspection woes can derail a quick closing. A low appraisal is a potent hazard, as is the newly complex FHA appraisal process. A glitch uncovered by a survey can tie up and even end a transaction.

But in the usual course of events, the factor that ultimately delays closing is the simple act of getting various checkers to the property. Since lenders keep lists of appraisers from whom they accept valuations, those could be shared with brokers. When Buyer Bob makes an offer that's accepted, the broker could arrange the appraisal immediately to get things moving.

In addition, if a buyer can preapply for a loan, why can't a buyer also preselect home inspectors, termite companies, and surveyors? That would eliminate a lot of hassle.

Inspections. Home inspections are becoming common, as they should. Since a typical residential inspection takes only a few hours, and the problems cited are usually minor, listing brokers would be wise to have a roster of repair specialists in hand so that residential bumps and bruises can quickly be fixed.

The real holdup with home inspections is that buyers commonly have seven to 10 business days to conduct an inspection. Add in weekends, take a few days for repairs, and the closing process is on hold for two weeks and maybe longer. A better approach: Have buyers preselect an inspector, who comes to the property within 72 hours after an agreement has been ratified.

A similar approach could work with other professionals. Brokers: Have a standing list of repair companies on hand for termite and other problems.

Surveys. Boundary disputes are rare but can drag on for months and years. In cases where there's a lot of concern but few actual problems, the best solution may be for the buyer to purchase an insurance policy—a bond—that says that if a major survey problem arises, the buyers shall receive x dollars to settle all claims.

Title. Obtaining good, marketable, and insurable title is crucial to a transaction, and buyers are wise to be cautious. Rather than recording title changes as we do now—and then requiring an elaborate search process—title information can be placed online just as we've begun to do with patent and trademark records. Once local governments put title records online, we eliminate trips to the courthouse and lengthy searches.

For example, see the Web site for the Essex County Registry of Deeds in Salem, Mass. The organization is entering records going back to 1639 into an electronic registry. If you want to search, go ahead—it's free.

If we implement the ideas I've mentioned here, we may not see less paperwork, but we'll realize more efficiency. We have in hand the means to effect faster closings today, and we'll see more electronic improvements emerge. As a result, brokers may be able to offer a new service--what might be called transaction management.

Rather than setting the closing process in motion after a deal has been made, why can't brokers line up all the necessary players and services beforehand? The result is the same—except for time on the calendar.

Are weeklong closings really here? Probably on an irregular basis. The next step is to make speedy closings a consistent reality.

Peter G. Miller, OurBroker®, also writes a column that appears in Realty Times each Tuesday, and is the author of The Common Sense Mortgage, the best-selling guide to real estate finance. He's the original creator and host of the Real Estate Center with America Online and maintains a consumer information site at OurBroker.com.

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