Dedicated to my Shorty...Escrow That Is
The month of February is cram packed with reasons to celebrate like Valentine's Day, the Lunar New Year and Black History Month. But there is another reason to be a fan of the second month of the year: it's short. After the abyss of 2020 and the 365 days that was January, we are anxiously looking forward to a month that's compact & to the point.
So, in the spirit of short & sweet, we're talking about short escrows. A typical transaction will take anywhere from 30 - 45 days, but a short escrow is usually between 10-15 days with some as short as 3 days or some that stretch to a brisk 21 days.
It used to be these short escrows involved investors coming in with all cash to buy properties they weren't emotionally attached to & Sellers that just wanted to move on. But with today's unprecedented Seller's market, more and more Buyers are chopping days off of closings and offering a free rent back to entice Sellers and stand apart from the insane competition.
On the surface it might seem that a short escrow is the same as any other transaction but the mistake is in treating it as such. Trying to squeeze a process involving many parties and lots of money into a shorter timeline automatically coats every interaction in a layer of panic that can be felt from the clients to the agents to the vendors. This unspoken tension can distract (or even cause) some pitfalls and hurdles. Keep reading to see the lessons we've learned from lighting fast closings.
Prep Work is the Best Work
The framework of a short escrow is the same as any other transaction. Deposit goes into escrow. Buyer utilizes the contingency period & decides to move forward or not. More money goes into escrow. Escrow closes & title changes hands. Many agents provide their clients with a similar overview during the listing/house hunting stage going into more detail as they pass each milestone, but with a short escrow period you've got to do all of the handholding upfront. You know your Buyer will need to get that deposit in ASAP so make sure they have the money ready to go. You'll know if they will want an inspection completed so get them a list of your preferred inspection companies. Let them know they will have to turn around signatures on documents as quick as possible so be prepared to take in a lot of important information from many different parties (escrow, lender, disclosures, inspection reports, etc). Make sure your Seller knows they might need to provide funds for HOA documents to be ordered, a termite inspection might need to be done and to make sure that all property disclosures have been completed & signed.
Know Your Contract!
We really can't stress this part enough. So many times an agent will shorten their contingency time frames to be competitive in their offer but then completely forget to adjust the Seller's time frames as well. You need to pay attention to this from the Seller side as well.
On the buy side you might have cut your inspection contingency time frame down to 5 days of a 10 day escrow. But don't forget, the Seller has 7 days to provide you with property disclosures meaning you could be sitting around waiting for 7 days out of your 10 day escrow to receive, review, sign & return important information from the Seller. On the flip side, remember that the Buyer has 5 days to remove the applicable contingency from delivery date of the disclosures OR until the agreed contingency removal date, whichever is LATER. So if your Seller takes their sweet time filling out & signing paperwork & gives them to the Buyer on day 5, you cannot demand contingency removal on day 7.
Buyer's agents should be sure to shorten ALL time frames in the contract when writing an offer with shortened contingency periods and Listing agents should either get all disclosures prepared ahead of opening escrow or at least prep the Seller that the Buyer could legally extend the contingency removal period.
LISTING AGENTS! THIS INCLUDES THE DELIVERY OF YOUR AVIDS! Your AVID is an addendum to the TDS and therefor bound by the same delivery timeframes. If your Seller gets a full disclosure package to the Buyers on time but you don't bother with your AVID until after inspection day, the Buyer could still delay contingency removal.
Loop in Your Lender
One of the most common complaints I hear from lenders is that the Buyer's agent is making promises of a quick close just to get their offer accepted and then throw the lender under the bus if that promise isn't kept.
Historically low interest rates have made the refinance business explode and that's put serious strain on not just lenders, but their processors and underwriters as well so you're lucky if your escrow closes within 30 days. The average right now is about 45 days.
But that doesn't mean that quick escrows on transactions with a loan can't get done quickly. Make sure your Buyer is preAPPROVED and not just preQUALIFIED. Even better if they already have underwriting approval. Make sure you have a conversation with the Buyer's lender BEFORE you submit the offer. And listing agents, it might not hurt to have a lender or two in your back pocket that you know comes through in a pinch if the Buyer's lender can't perform. See our post on steering to make sure you navigate the "cross qualification" pitfall.
The current market is overrun by qualified, serious Buyers with little to no inventory to choose from which makes them desperate. It's up to you as the agent (no matter the side) to stay cool, calm and collected despite the hectic nature of the transaction.
If you take into consideration the factors listed above, speedy escrows can certainly be successful and smooth (I can't help myself sometimes...). Have another tip you swear by when working on a short escrow? Leave us a comment below!