Buying and selling on the same day can be a recipe for disaster

One of the most common questions our clients ask is, “When will I get the keys to my new home?” If the transaction is a typical purchase, our answer will be “Most likely by 6 p.m.” But when someone is selling a home to buy a new one, and the closing dates of both transactions are the same day, our answer may be lengthier and more qualified.

A standard Agreement of Purchase and Sale (“Agreement”) allows a purchaser until 6 p.m. on the date of closing to fulfill their obligations to purchase the home. On a typical residential transaction, the purchaser’s lender will send mortgage funds to the purchaser’s lawyer, who will then send the full amount required to purchase the property to the seller’s lawyer. After the transfer of funds, a Transfer will be registered to legally convey the property to the purchaser.

Most funds are transferred by wire transfer, most of which occur almost instantly, but some can take several hours.
If you are selling one home to buy another, you will be at the mercy of the purchaser, their lender, lawyer and the timing of multiple wire transfers. If your sale closes before the 6 p.m. deadline, we then need to take all the same steps above to complete your purchase.

In a perfect world, it all fits together. But our world is not perfect.
Your lawyer may be ready and fully prepared, but for some reason the purchaser of your old home causes an inordinate delay – and that purchaser has no obligation to get you the funds early enough to close your new home. If we receive funds from your purchase too late in the day (for example, 5:50 p.m.), we may not be able to complete the transfer of funds required to complete your purchase (bank wires are touchy after 4 p.m.). At this point, you have moved out with all your belongings in a moving truck, and you have no new home to move into. At the very least, you are left scrambling at the last second to find a spot to park your moving truck. And worse, where will you, the kids and dog sleep?

Technically, if you couldn’t close by 6 p.m., you have breached your purchase contract, even though you did nothing wrong. Most sellers will allow an extension to the next business day. Many will ask you to pay any legal fees or other costs they incur. At worst, the seller can say you're in breach of contract, terminate the agreement, take your deposit and leave you with no new home.

How to avoid timing issues on closing

1. Be prepared! The Boy Scouts had it right. Have a back-up plan in place, in case everything goes sideways.
2. Almost every institutional lender provides bridge financing. This allows you to buy a new home before selling your current home by giving you a temporary loan, in addition to your mortgage, to be paid back on the sale of your home. Get a bridge loan and close your purchase first.
3. If that doesn’t work, arrange for your goods to be picked up and held overnight and close the sale first.
   Most often, things work out, although the stress can be quite concerning. Get the right lawyer who understands your needs and works with you to try and meet them. Good luck and happy home hunting.