Your House is Under Contract! Now What Happens?
You have signed the final documents and have an executed contract. The executed contract goes to the buyers, the sellers, the buyer’s mortgage company, the real estate agents and the title company. The status is changed in the MLS from active to an active/option status, and the showing service is notified of the change.
Now is the time to pay attention to any documents that you didn’t complete during the initial listing process:
- Does your agent have the properly signed and initialed seller’s disclosure?
- Have given your agent a copy of your survey?
- Did you have your T47 notarized and returned to your agent?
- Did you provide your agent with information about your average utility bills and utility providers?
- Be prepared to give the title company information about any loans on the property or judgments.
The title company will also need HOA information and divorce decrees, death certificates, wills or other documents pertaining to your home ownership.
The buyer’s agent gets the option and earnest money checks from the buyers. The checks are delivered to the seller’s agent, or the earnest money check may be taken directly to the title company. The seller’s agent mails or delivers the option check to the sellers. If the check is mailed, the seller’s agent asks the buyer to acknowledge receipt of this money. The seller’s agent completes the option receipt page of the contract, and the title company receipts the earnest money.
The Option Period
The buyer should be planning to have a home inspection. The buyer may choose any home inspector, but if the purchaser doesn’t know any home inspectors, the buyer’s agent can provide the contact information for several inspectors who have worked well for previous clients. After the inspection the inspector will prepare a detailed report giving the condition of all of the components of the house. The buyers will review the report and talk with their
agent about what repairs they wish the seller to make or if they would prefer a monetary credit for the repairs. If the buyers don’t ask for repairs, no amendment is sent, and the contract moves on to closing. Monetary credits must carefully fit into the mortgage rules and legal guidelines for real estate sales. The buyers and their agent will prepare an amendment to the contract requesting the repairs or the money for the repairs. The seller’s agent will present the amendment to the seller who has a chance to negotiate the repairs.
If the buyer requests extensive work requiring contractor bids or price comparisons, the option period may be extended to allow time for the seller to obtain these. At this point the buyer or the seller may walk away from the contract over the repairs. For example, if the house had serious foundation issues which the seller couldn’t afford to repair, the owner might decide to continue living in the house or to lease the property instead of spending the money to fix it. The buyer would lose his option money, but his earnest money would be returned to him.
The seller may continue to show the home during the option period, but most sellers prefer to relax, begin packing and not show their home any more. The lockbox remains on the house so that the inspector, appraiser and the future buyer can enter according to the seller’s instructions. Denying entrance to the inspector or appraiser can delay closing because they need to complete their work on schedule. The new buyers often wish to bring their extended families to see the home or to measure for furniture, appliances, draperies or flooring. The seller no longer needs to keep the house neat at all times and in show-ready condition.
The Loan Process
At this stage the documentation for the buyer’s loan can be submitted to the loan processor. The buyer will sign the necessary loan disclosures and deliver all of the papers that the lender is requesting to get his mortgage. The lender wants verification of employment, tax records, and a multitude of documentation that is being collected now to move the buyer forward toward loan approval. The loan processor verifies the buyer’s income calculations, orders the flood certificate, the tax transcripts from the IRS, the appraisal and ensures that all necessary paperwork is in the file required by the underwriter. As the loan process moves forward, the lender contacts the title company, which begins preparing all of their documents and doing their searches.
Delays in closing can start at this stage. If the buyers do not return the requested paper work to the lender quickly, the processor can’t keep the file moving forward. When all the documentation is collected, the loan request moves on to the underwriter who analyzes the overall credit worthiness of the borrower including the quality of the collateral presented. If the underwriter has questions about the information that the borrower presented, the underwriter will go back to the processor and the loan officer and ask more questions and require more documentation from the borrower.
If the mortgage company doesn’t order the title work promptly, the closing can be delayed as the title company scrambles to do their job. When the buyer and seller disagree over repairs and the option period is extended or if the mortgage company finds a reason to doubt that the buyer is qualified for the loan, the appraisal will not be ordered on schedule. Since the buyer must pay for the appraisal, the mortgage company hesitates to order an appraisal if the transaction is in jeopardy. Having an appraisal late in the process can delay closing because the total process takes several days from the time the appraisal is scheduled, completed and submitted to the mortgage company for review. A delayed appraisal is a red flag to the agents that the transaction is in trouble or at least might be delayed.
Now is the time for the seller to find the survey and get a copy to your agent. If you have a copy of your survey, and have not made any changes to the property that would impact the this
survey, get the T47 form notarized. A new survey cost about $400, and if you can use yours, you could save a lot of money.
After the Option Period
When the buyer is out of the option period, he can no longer change his mind about buying the house without the serious possibility of losing his earnest money. The mortgage company is
moving forward on his loan, and if everything looks good, the appraisal is ordered if it wasn’t ordered earlier. Being sure that the house appraised for the contract sales price is usually the
last big hurdle as we move on toward closing. If the appraised price of the house is less than the sales price, we have some options, and we agents will work hard to negotiate to keep the
transaction moving forward. When the appraisal matches the sales price, the seller should be seriously having a plan for moving, including where he will live and how he will move out of his
The mortgage company will grant conditional approval to the borrower, but the approval is still contingent upon the borrower being able to provide additional information that is required. This is time for the seller to do all necessary repairs.
Please choose a repair person who is capable of doing the work well. For example, if the buyer asked for a licensed heating and AC technician for a particular repair, do not hire a general handyman to fix that problem. If the buyers are not satisfied with the repairs, closing could be delayed until the seller has the work done right.
Once a series of artists’ lofts, these older buildings have amazing architectural features. Updated electrical service, windows and HVAC provide all the charm of the industrial era with all the comforts of the modern era along with fabulous hand-crafted details.
The buyers usually request receipts for the repairs, which can include such items as the caulking that was purchased at Home Depot if you did your own repairs. All receipts from contractors will be required.
Plan to get copies these receipts to your seller’s agent who can pass them along to the buyer’s agent or you may be asked to provide copies of the receipts in a folder inside the house for easy review when the buyers do a final walk through. Warranties for expensive, professional work done to the house should be given to the buyer at closing or left in the house after move-out.
The buyer will be ordering his home owner’s insurance which might mean a stranger will be on your roof to see if it’s insurable, but that’s part of the process. At this point the buyer should also choose a home warranty if one is given.
On Toward Day 45
The seller will be finishing repairs, and the buyer’s agent will be asking how the repairs are progressing. The buyer’s agent will request a final walk-through to check repairs and the move
out condition of the home with the buyer.
The buyer and seller will schedule a tentative closing date and time. The mortgage company will be doing a final check to be sure that the buyers are still qualified to buy the house, and the
mortgage company will be preparing the final papers to get them to the title company in a timely manner for closing. Once all the conditional approval required documents have been obtained, the loan processor will review the documents and submit the loan for final approval. The underwriter will again review the items and might ask for more documentation or explanations. If new issues arise, the closing might be delayed while the mortgage company and the borrowers clear up the conditions.
Once the mortgage underwriting department has provided a clear to close and all of the final conditions have been met, the loan moves on to the Closing Department. This department prepares closing instructions for the title company. When the title company receives these instructions, the HUD1 is prepared. This is the final closing statement giving all of the final
figures for closing. The lender will need to approve the numbers, and the preliminary statement is sent to the
agents for review. When the closing department of the mortgage company has the final HUD1 approved after
all of the necessary changes, the closing documents will be released to the title company. Title companies
usually request one day from the time that they receive the final documents until they close, but sometimes
documents that come early in the morning can be used for a late afternoon closing.
Buyers and sellers will do the final coordination of movers and utility transfers according to the contract and any new amendments. Be sure your agent talks to you about where to leave your
keys or where to get them if you are the buyer. The buyers need to plan to transfer the utilities early because many companies do not hook up the utilities immediately.
Please plan for your pets when you move. One of my saddest moments this year was when I learned that my clients had lost their beloved cat when the movers removed the furniture and left the doors open. Crate your pets or send them to stay at another location during the chaos of moving.
Hopefully, the title company scheduled the closing days earlier, but if the closing documents are late, you might be rescheduling the day of closing. If you are a buyer, you will bring a cashier’s check for the amount that your lender says you need at closing. If the amount is slightly different when you get to closing, the title company can take a personal check for the difference. Sellers should bring a voided check to give to the closer so that funds may be directly routed into you checking account. The title company will issue the seller a check, but the money from a check will not be available as quickly as with a direct wire. When you hear the magic words, “It’s funded,” your home is finally sold.