5 Things to Consider When Closing on a Home Sale Goes Wrong
/A lot has been written on the steps to buying a home, as well as all the emotions that come with the process. I wrote about moving and the home buying process as well earlier this year. Selling a home, however, can be just as anxiety-provoking, joyous, and/or [fill in the blank] as well, especially when the process does not go according to plan.
My husband and I recently (and finally) completed the sale of our house in Chicago late last month as we made the transition to Charlotte. I have a new perspective on the closing process, which came to a conclusion many months later than our expectations. I want to offer up some lessons learned from our closing process that might be helpful for you, or someone you know.
Let me give you a little backstory. We put our Chicago home on the market to sell in early May 2022. We found buyers within the week of our listing, as our neighborhood of Woodlawn has been a hot housing market for the last several years now despite current rising interest rates. We moved toward a 30-day close, which was set for June 22nd. We passed the due diligence period, negotiated a couple of credits, performed a housing inspection, and were two days away from closing when the buyers stepped away from closing. We were a bit floored given the sudden change in direction. We surmised that the walk-away was due to ‘cold feet,’ as the husband and wife buyers were first-time home buyers.
We regrouped in a week, put the house back on the market in an environment where interest rates were ratcheting up more quickly, and thankfully found another husband-wife buyer over the next month. We closed with these new buyers on September 22nd, exactly 3 months after our first closing was set to take place.
Whatever might be your individual situation, here are the lessons I now share with you that might be applicable:
Be wary of first-time buyers. First-time home buyers can be a blessing or a curse. On the blessing side, first-time home buyers are typically new to the process and thus you may be able to have an upper hand in your negotiations with them and some of them can be eager to get into their first time. On the other hand, first-time home buyers are going through the buying process for the first time, which also potentially comes with a bit more uncertainty, financial risk, and walk-away risk. In our case, our buyers were so nervous that they got cold feet and managed the process toward the end as if they were specifically looking for a way to back out of the deal. Have a healthy amount of skepticism when dealing with first-time home buyers.
Hold on to your sanity and financial resources - it will eventually work out how it is supposed to for you. It’s stressful being yo-yo’d by a closing and selling process. Focus your energy and attention on your Plan B and Plan C. Ask yourself these questions: What will I do if I can’t sell the house? Will I rent it, and when will I make that decision? How long can I go making two mortgage payments and paying for utilities at two houses, and what do I need to do in order to make that happen? With the extra time to ponder about what I may do with any monetary gains from the sale, what’s the best place to put the gain on my home when I eventually do get my money?
Keep tabs on emotion closure. The need for emotional closure is real, and it might affect your decisions and choices. We simply wanted to move on emotionally from Chicago, in addition to the physical move. We wanted to hold onto the memories and begin to make new memories. Since our closing dragged on more than we anticipated, so did the emotional toll and thus we needed to find ways to honor the emotional toll and ways to release the stress. We were happy when we could finally also have the emotional closure we needed.
Understand the parameters under which you might get your earnest money back (or not). Here’s where you will need to ensure you have an excellent lawyer and broker. Talk to both of them to find out the parameters of earnest money in your state, each with its own rules and regulations.
Know whether you will pay taxes or not. There are circumstances where you shouldn’t have to pay taxes on the gain based on IRS Topic 701, which states that “If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.” You can learn more at the IRS website.
A Wealthy Girl Corner
Earlier this week (10/10), we celebrated World Mental Health Day! Whether your stressors come in the form of a housing close gone awry or something else, remember to take some time to protect and sustain your mental health. It’s hard to generate the wealth you so desire when your mental state is compromised. So, I hope your mental health stays in order, or you get the help you need to help you on this journey - everyone needs assistance at times along the way.
