It looks like “hurry up and wait” could be the new normal for real estate investors and traditional home-buyers who are eager to close on their new properties. According to recently published information from the National Association of Realtors (NAR), the average time-to-close this year was nearly four days longer than it was in 2015. While this might not surprise investors familiar with the new “Know Before You Owe” regulations for loan origination, which went into effect in October 2015, most industry professionals had predicted that the regulations would cause a temporary slowdown in closings rather than permanently extending the timeline. According to Ken Fears, NAR director of regional economics and housing finance, however, extended timeline closings could be the “new normal.”

While four days might not seem like that big a deal at first, those four days can prolong a closing much longer, depending on when it occurs. Know Before You Owe, also known as TRID, sometimes extends a closing far enough that attractive mortgage rates that a homeowner relied on in order to purchase the home in the first place may lose their “locked-in” status. When this happens, the entire process may have to be reset and the sale may even be lost. This is, of course, a worst-case scenario. In many cases, the main issue is frustration on the part of both buyer and seller.

The NAR recently surveyed a number of real estate professionals about why they believed their closings were being delayed. About one in three blamed delayed closings on financing, appraisals and home inspections. Although financing played the biggest role in delay, an increasing number of real estate agents reported a shortage of available appraisers in their area. Back in September, CNBC reported that the appraiser population was shrinking, in large part because appraisers were having difficulty completing their training, which involves an apprenticeship, thanks to the high demand for existing appraisers. Historically, these apprentices have had the ability to assist their mentors by helping inspect properties, but rules put in place at the end of 2008 now prohibit this. As a result, licensed appraisers have far less time in which to train their apprentices because they cannot rely on them for assistance with the appraisal process.

As the year draws to a close and interest rates begin to rise (albeit, quite slowly), it seems likely that home sales and refinance originations could begin to fall in 2017. This could help bring closing times back down to average lengths from 2014 and 2015 (around 36 days) simply because the volume of transactions will have fallen. Also, although many analysts expected lenders to have fully adapted to the new regulations a year later, it may be that the process is simply taking a little bit longer than most parties expected.

 

About the Author

Carole VanSickle Ellis is the host of Real Estate Investing Today, a daily nine-minute investing podcast, and the editor of the Bryan Ellis Investing Letter. Contact her at editor@bryanellis.com or visit www.investing.bryanellis.com.

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  • Carole VanSickle Ellis

    Carole VanSickle Ellis serves as the news editor and COO of Self-Directed Investor (SDI) Society, a membership organization dedicated to the needs of self-directed investors interested in alternative investment vehicles, including real estate. Learn more at SelfDirected.org or reach Carole directly by emailing Carole@selfdirected.org.

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