Piggy Bank

Case Study: Buyer Refinance Causes Expensive Delays In Settlement

Agents can help avoid expensive delays in settlement by clarifying the intentions of their buyers in relation to finance prior to submitting an offer to the seller.

During the course of a recent settlement, the buyers decided to shop around for the best finance deal as part of the finance approval process. After finding out that refinancing could save thousands over the course of their loan they decided to switch to another bank.

As expected the new bank gave them plenty of assurances that the refinance could be achieved in time for settlement. It soon became evident this would not be the case. Unfortunately, a series of bank errors that included lost paperwork and miscommunication resulted in a settlement delay of over two weeks.

While this delay was entirely the bank’s doing it caused the purchaser a great deal of anxiety. Despite being keen to move into the property the buyers were forced to sit and wait while the bank rectified their mistakes.

The seller was clearly distraught. They had accepted an offer based on an anticipated settlement date and now had little choice but to wait while the buyer waited for the bank. When the property finally settled, the purchasers had a penalty interest bill of over $2000. Fortunately for the buyer the bank undertook to reimburse the buyer.

There are a number of lessons here for agents to help avoid these problems:

  • When signing up an offer, ask the buyers about their plans in relation to finance. If the buyer owns other properties ask them if they intend to refinance.
  • Provide additional time for finance approval if the buyer plans to shop around for finance. The selection process alone could take the best part of a week.
  • Allow additional time for the period between finance approval and settlement if the buyer intends refinancing, and especially if the refinance involves multiple properties.
  • Allow a minimum of 21 days for the period from finance approval to settlement. Most mortgage documents are produced in the Eastern states and extra time is needed to allow for postage. 28 days is always a safer option, even when a deal seems straight forward.
  • If if becomes apparent that there may be complications ask for an extension of time early. Address the problem as soon as it surfaces.

Keep your settlement agent in the loop. A problem shared is a problem halved.