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Real Estate 101: The Buying Process, Part II

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Offer Accepted! Now What?

Earnest Money

Once both parties have signed off on an offer, it becomes a binding contract (also known as an “executed” or “ratified” contract). The clock starts ticking on all of the dates and deadlines referred to in the contract. You will have to get your earnest money deposit (also referred to as “EMD”) over to the Title company in the number of days stated in the contract (generally 3 days). This deposit confirms your intention to purchase the property, and the transaction goes into “pending” status. If the sellers does everything they are supposed to do, in accordance with the contract, and you do not, there is a chance you could lose your earnest money deposit.

Scheduling Inspections

As soon as the contract is executed, you and/or your Realtor should start scheduling inspections. Your Realtor will likely provide you with a list of reputable home inspectors with whom he or she has worked, and you can select who you would like to use. Depending on what type of financing you are using, different inspections may or may not be required, but it is always recommended to have a thorough buyer’s home inspection, at minimum. Other inspections you may want or need to have done include a termite inspection and septic inspection.

Your Realtor will have put a time frame during which you have the right to inspect the property and, if needed, back out of the contract with no penalty (you would receive your EMD back). When we get the inspection report back, what we are looking for are safety issues, not cosmetic concerns. If a significant flaw is flagged in the inspection, your Realtor will write up a Request for Repairs (something else for you to sign!) and submit to the seller’s agent. Then the repairs can be discussed, negotiated as needed, and arranged.

Lender

Another thing you will need to do within the first five days of having an executed contract is choose a lender and start the full loan approval process. This process can generally take up to 35 days, and your Realtor will have used this number to calculate a “closing date” for you, on your contract. Your lender will ask for many documents to further show your financial position and confirm your ability to pay back the mortgage. Toward the end of the process, you will need to choose an insurance company and get set up with home insurance, and, if required in accordance with the flood zone your new home will be in, flood insurance. Prior to closing, your lender will send you a Closing Disclosure.

Getting Closer…

Appraisal

After inspections and, if needed, repairs have been completed, your lender will order an appraisal. The appraiser will coordinate a time with the seller to come take a look at the home, and use that, as well as data from recent comparable sales in the neighborhood to determine the home’s value. If the number the appraiser comes back with is lower than the the agreed upon purchase price, the lender isn’t going to loan you money above and beyond what the home is worth. In this case, the price can be renegotiated, the seller can come up with the difference, or you can walk away.

Survey

The title company will ask your Realtor whether or not you would like them to order a survey. The seller may already have a survey available, which you technically may be able to use. However, it is recommended that you initiate an order for a surveyor to come out and survey the property for you. The reason for ordering your own survey is to avoid any potential squabbles down the road in case of mistakes on the seller’s survey. The survey will show property lines and whether there are any encroachments or easements on the property.

Meanwhile…

Title

The Title company, also known as the “closing agent,” acts as a coordinator between all relevant parties to the transaction including buyer, seller, real estate agents, lenders, lien search companies, and surveyors. After the purchase and sale contract is ratified, it is sent to the Title company who begins the title and closing process which involves Title Search (reviewing the history of the title and clearing any liens, claims, or other “title-clouds” on the property to ensure you receive a clear title on the property you are buying); Survey, which was discussed in detail above; Verify with the taxing authority that the property taxes have been paid (taxes will be pro-rated on the Settlement Statement signed at closing, based on current billing period and closing date); Prepare the Title Insurance Commitment & Policy (owner’s and lender’s Title Insurance policies will be issued at closing); Coordinate with the lender to receive all the loan documents and use these to prepare the Settlement Statement. Title also prepares the Warranty Deed, Bill of Sale, Closing Affidavits and other documents needed for the closing. Prior to closing day, you and your Realtor will receive a copy of the Settlement Statement to review (this statement is a list of credits and debits of the buyer and seller in connection with the purchase and sale of the property) and a copy of the Title Commitment.

Finally!

Closing Day

The seller and seller’s agent may come in early to sign off, or you may all sit at the table together with the closing agent, your agent, and often, your lender as well! In any case, the closing agent (the person from the Title company) will sit at the head of the table and you will sit at the seat closest to him or her. There will be a stack of documents for you to sign, and the closing agent will go over these with you. This process generally takes about an hour. At the end of the process, the keys are handed to you, and you are officially a home owner! After the closing, the Title company disburses the monies collected in accordance with the Settlement Statement, and pays off any existing mortgages. The Title Company also delivers the signed warranty deed and any mortgages to the Clerk of the Courts for it to be recorded in the public records.

Congratulations on your new home!