Walk-Through Issues: How to Solve Quickly and Close on Time

Both the AS IS Contact and Standard Residential Contract state that on the day prior to the closing date, or on the closing date prior to the time of closing, the buyer or buyer’s representative may perform a walk-through (and follow-up walkthrough, if necessary) inspection of the property to confirm that all items of personal property are on the property, to verify that the seller has maintained the property as requested by the Maintenance Requirement, has met all other contractual obligations, and, in a standard contract, to make sure all necessary repairs have been conducted.

In an ideal world, the walk-through goes smoothly, and parties proceed towards closing. Unfortunately, walk-through issues do occur. A few examples of walk-through issues are: 1) AC is not working but was operable during the inspection, 2) the seller has not removed any personal property items, and 3) the seller did not properly repair items that were contractually required to be repaired. In the event a walk-through issue arises, there are typically three options to resolve and proceed toward closing, listed below.

1. Extend the Closing Date:
   a. This is the easiest and the least messy option. Extending the closing date allows the seller to resolve any walk-through issues at their cost and allows the buyer to re-inspect and close when the work is completed.
   b. Many parties to a contract do not want to extend the closing for many reasons (i.e., simultaneous closing, lender restrictions, need to occupy the property today, etc.)
2. Parties agree to close, but the seller provides a seller credit:
   a. When parties proceed with this option, the seller provides the buyer with a closing cost credit so the buyer conducts the repair(s) themselves post-closing. Typically, the seller will obtain an estimate for the repair(s), and the credit will reflect that amount.
   b. An addendum to the contract will need to be drafted in order to include the seller credit on the closing statement. If a lender is involved, the credit addendum will need to be provided to the lender’s underwriter, which sometimes cannot be reviewed on the same day and may lead to an unwanted closing extension.
3. Parties agree to an escrow holdback:
   a. This option requires the seller to repair the item(s) post-closing, and the closing agent typically holds 125% of the estimated repair(s) back at closing. Once the repair(s) are completed, the funds are released as payment to the contractor and the remainder of the funds to the seller.
   b. An escrow agreement is strongly encouraged in the event of an escrow holdback, which requires the closing agent to draft a legally binding document, and typically, a fee is incurred.
   c. If a lender is involved, the escrow agreement needs to be approved by the lender’s underwriter. Dependent upon the type of repair(s), many lenders will not allow an escrow holdback. If a lender does allow an escrow holdback, the underwriter will have to approve, which sometimes cannot be reviewed the same day and may lead to an unwanted closing extension.

It is important for REALTORS® to understand how to quickly resolve walk-through issues to best service their clients. While the above list is not exhaustive, and every walk-through issue is unique, it should provide good insight to all REALTORS®.