Once you’ve chosen a home, negotiated an offer, and had it accepted, the fun begins! (Ok, maybe fun isn’t the right word, but it will certainly help if you know what to expect and how to navigate it, so keep reading!) We will outline a few of the steps and talk briefly here about them, but certainly talk with your agent for a deeper discussion about what your purchase will entail.
1) Binding Agreement and Earnest Money
Once you and the seller have come to terms, you each sign and develop a legal binding contract. In this contract there are dates each must adhere to (or agree to amend throughout the process) in order that the contract remains legal and enforceable. Upon agreement, in the contract you will have put an amount of earnest money, also sometimes referred to as escrow money or good faith money. There is also a time limit your agent allowed for this money to be submitted. You MUST submit this money to the designated agent in this time frame. Don’t worry – this money will be applied to your purchase. It’s not an ‘extra’ charge or expense to the purchase, but you will need to have this amount up front.
2) Closing Agent or Title Company
In the contract, there is a place to disclose your closing agent. A lot of buyers either don’t know who to choose or leave it to the discretion of their agent who works with the different closing agents on a regular basis. Some buyers have an attorney close the transaction for them, others rely on a title company which usually either has a title attorney on staff or contracts with one. Either way, you must have a closing agent which represents you (it’s ok if they represent the seller, too) and ensures all legal documents are properly handled. This agent will research the complete history of the property making certain that there are no encumbrances attached to the property. They will divulge any recorded easements and encroachments to the property which may limit the rights or usage to it. They will also ensure the sale is recorded at the county’s court house and disperse/exchange all monies in the transaction. Discuss with your agent who he/she recommends or do your own research. Some title companies help things to go more smoothly than others.
This one is very important! Once you’ve gone under a contract, you have a certain allotment of time to hire a home inspector to do an inspection of the home and property. You may choose to have different inspectors evaluate the home in specific areas, such as a contractor to evaluate the roof, an HVAC specialist to evaluate the heating/air unit and duct work. Or you can hire a general home inspector which doesn’t specialize in any certain area, but is trained to evaluate all. Once the inspection is done, the inspector(s) should provide you with a written report which includes notes and photos of their findings. Don’t be overly alarmed by this report. It’s EXTREMELY rare that an inspector wouldn’t find anything wrong in a home. Some reports can be thick and long. It doesn’t mean it’s a bad home. Some items may be minor in nature, while others may be of bigger significance. Again, it’s important to be able to trust your agent in knowing what is most important from this report.
4) Further Negotiations or Start Searching Again
Depending on the results of the inspection(s), there are a couple of options which may happen.
A) You and your agent review the report and decide on items you will require to be fixed, repaired or remedied. It may be helpful if you divide this list into two categories: the items which are non-negotiable and WILL be required for you to continue the purchase and the items you would like the seller to do, but aren’t a deal breaker to the purchase. Remember in this case to be fair, and don’t get so involved in getting your way, that you negotiate yourself right out of your dream home. If you negotiated a really good deal on the home, the seller may be less inclined to do more in repairs. However, if you’re in a market where you’re paying full or close to full price, you may be able to ask for a little more from the seller. Be cautious not to be petty about requests. Caulking a window seal is easy and definitely not worth losing a dream home over. The seller does not have to agree to do all your requested repairs, and there may be some negotiating between the two of you to come to a solution. Of course, your agent will be there to advise and negotiate on your behalf, and once a resolution has been reached, all agreements will be put on a legal binding form and signed by both parties. Lastly, there is one other option we feel compelled to mention here. In some cases, it may be a more ideal solution to request a renegotiation of the contract, usually the price, rather than ask the seller to do or have the repairs done.
B) In the event the inspection report is filled with repair after repair, or possibly even something major of concern, and you do not feel comfortable going forward with the purchase; you may ask your agent to withdraw your offer, return your earnest money and begin your search again. If this option is chosen, you MUST ensure that you are within the time frames which were drawn out in the original binding contract to do so. Otherwise, you may face legal action from the seller or seller’s agent for backing out of the purchase. This is why it is SO important to follow all deadlines and dates outlined and stay on top of your duties as a buyer.
5) Appraisal and Lending
It is crucial that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution. This is done so that the lender can confirm their investment in your property is accurate. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. This is also where it is extremely important to have a great and knowledgeable agent. IF your appraisal comes back under value, your agent will need to go to bat for the value with the appraiser. He/She can use their comparable sales to try to make their case with the appraiser. This doesn’t always prove to be successful, but the stronger the argument and evidence, the better the chances. Should the property not appraise for the binding contract price, another negotiation will need to take place between you and the seller. Either the seller will need to come down to appraised amount, you will have to pay the difference out of pocket, or you could agree to meet somewhere in the middle. However, the lender is only going to loan money on the appraised figure.
6) Preparing for Closing
So, you’ve made it through inspections and appraisal! You’re well on your way to closing. It’s important to prepare for the big day! A few things to consider:
- Property Insurance – Especially if you’re obtaining a loan, the lender will need to know what insurance provider you plan to use for a policy on your new home. In most cases, this cost will be included in your monthly payment and your insurance will be paid for straight from your mortgage carrier. This home is their investment, too, and they want to ensure that the property is covered in the event of a disaster. You may want to shop around for the best rates, but in any case, you will want to have the property covered by an acceptable policy.
- Utilities and Home Services – Moving day is quickly approaching and you will want to call ahead to the utility companies to have the services put in your name. Some utility companies require a copy of the closing documents to turn services over. Either way, if you can’t get the services on effective the date of closing, you will want to negotiate with the seller to leave them on in his/her name until they can be officially turned over. Otherwise, it’s hard to move in without electricity and/or water. Cable, trash service, mail service are just a few others you may want to think about.
- Final preparations – As the day nears, the closing agent will generally give final instructions on what to bring to closing, the location of closing, etc. In the haste of packing and moving, you want to make certain you have needed documents available. Remember, still no major purchases at this point. Your lender will pull your credit score again within 2 days of closing to ensure you are still in good standing, have the same to similar debt to income ratio, etc. You’ve come so far… you’re almost there!