After someone has made an offer on your house and you found a buyer, there is still a lot that needs to be worked out between you and the buyer before the sale can actually close.
There are innumerable aspects of a real estate transaction that can be negotiated and it is important that you, as the seller, feel comfortable and confident when negotiating or you risk being talked into agreeing to a contract in which the terms are not in your best interest. Many aspects can protect and enhance the transaction such as financing and home inspection contingencies. Even standard purchase contracts can contain language that terms that do not fit your situation and are undesirable to you. The language can also be confusing to those not familiar with real estate terminology so you want to be certain that you hire a knowledgable real estate professional to explain the complexities to you.
Two types of contingencies are most common in real estate transactions: financing contingencies and inspection contingencies. A financing contingency makes the purchase of the home conditional upon the buyers ability to obtain a loan. An inspection contingency makes the purchase conditional upon the results of the home inspection. This allows buyers to have professionals inspect the property prior to closing to determine any issues or detriments. Additional contingencies may require the seller to keep the property maintained to its present condition until closing or will state who is responsible for any repairs.
What items stay in the home for the buyer is also negotiated. If the seller wants to take certain appliances (dishwasher, washing machine, dryer, refrigerator, stove, microwave, etc) it must be explicitly stated in the sales agreement. Appliances that are not built in or permanently attached are not automatically included in the purchase.
Earnest Money Deposit
Earnest money is the deposit paid by the prospective buyer to show intent to complete the sale. The amount of earnest money varies depending on the value of the property and provides the seller with a source of payment if the buyer defaults. The amount of earnest money has a role in the negotiation strategy your real estate professional utilizes. Once the offer is accepted by both the buyer and the seller the earnest money is put into a trust by the listing agent or the selling agent and is used as a credit toward the balance at closing. If the transaction does not close, the defaulting party may lose their claim to the earnest money deposit.
Known as either the Contract of Sale or the Purchase and Sale Agreement, this contract is a legal document binding the buyer to a purchase price and the seller to the transfer of the title. It also directs the escrow company to begin processing the transaction.
Be sure when preparing the contract, you direct your real estate agent to be clear about:
Who is responsible for certain costs?
Typically, sellers are responsible for the real estate commission, title insurance, state transfer tax, 1/2 of the closing fee, document preparation, loan fees, and a prorated portion of the years taxes and assessments. In some cases, the seller and the buyer will have an agreement in which they share these expenses. If this is the case, it must be negotiated during the purchase offer and included in the Purchase Agreement. The party held financially responsible depends on the state of the local real estate market, other terms of the contract, and timing. Some lenders allow a credit given from the seller to the buyer for a portion of closing costs but they will typically not allow for a credit that reduces the amount of the down payment or includes any recurring closing costs. The size of the credit permissible varies depending on the lender.
The closing date is stated in the original purchase agreement. When deciding upon a purchase date, take into account the amount of time you need to move. The date of closing can affect the closing costs.
Date of Occupancy
It is common for the seller to remain in the property after closing to ensure that closing actually occurs before the seller relocates. In this case, the seller will become the tenant of the buyer after closing and to account for this, proper documentation is imperative.
Home warranties are becoming increasingly standard in real estate transactions. The seller may already have a home warranty and in the event they do not, the buyer should purchase a policy at closing. Home warranties will cover the cost of repairs or the replacement of most mechanical systems or built in appliances for one year from the date of closing.
A building inspection is performed to determine any problems with the property or repairs that need to be performed. The sellers responsibility for repairs is an important point that is negotiated. If the estimated cost of repairs exceeds the sellers limitation, the buyer and seller will renegotiate how to address the repairs. At IMAX Premier, we have the expertise to successfully negotiate this aspect to help you achieve your goals.
The appraisal is an approximation and opinion of the property’s monetary value. Appraisals are typically performed at the request of the lender and consider factors such as square footage, quality of construction, design, floor plan, amenities, energy efficiency, lot size, topography, view, and landscaping. Also considered is the quality and safety of the neighborhood, quality of the local schools, and proximity to transportation, shopping, and schools.
Title Insurance and Transfer
The final stage of closing is the transfer of the title from the seller to the buyer. When the buyer and seller agree to the terms of a contract, the commitment for the title insurance is ordered. The title insurance policy is sent from the title company agent to the buyer after closing. The title company will handle the escrow, the third party that is responsible for the transfer of money and documents, including the title and deed, between the buyer and seller. The escrow company will prepare documents, draw up closing statements, obtain signatures, record documents, and receive and distribute funds.