In Part 1 of this article I outlined the initial steps a buyer needs to take in the home buying process. In this post I will explain what happens once a buyer finds “the” right home.
The Offer
After viewing a few homes or many homes, eventually you will narrow your choices down to one “best” house. It’s time to make an offer. Your Realtor’s expertise will now be most helpful. Together you will evaluate not only the other homes on the market (the relative value of the other choices), you will research the value of the home in question. A seller can ask anything they want from a home so it is important that your offer is based in reality, not a seller’s fantasy. After checking the comparable sales it is a good idea to evaluate the position of the seller. How much do they owe? How long has the house been on the market? Have they reduced the price? What other clues do we know about motivation? With all of this knowledge you can with your Realtor formulate an offer strategy.
Once the strategy is in place your Realtor will then prepare a written offer. In Colorado we use a standardized form approved by the real estate commission. Most of the contract is pre-written and we have just to fill in some blanks. Your Realtor will advise you on reasonable contingency dates, contingencies, inclusions, financing and any additional provisions that are unique to this particular property. Once the offer is written, the buyers sign and date the agreement. The offer is then delivered to the listing agent and/or the sellers for review.
Earnest Money
So you will not be placed in an uncomfortable position when you purchase a property, an understanding of the earnest money deposit is important. At the time a written offer is initiated, you will be required to include a personal check or cashiers check as a good faith deposit. The check is deposited into the listing broker’s escrow account upon contract acceptance and will remain in escrow until the time of closing. This amount is credited towards your closing costs and down payment at closing. If the offer is not accepted, the deposit is returned to you. The amount depends upon the sales price of the property. The amount is negotiable, but a good rule of thumb is 1% or more of the offer price. You can only loose your earnest money if you change your mind or if you do not perform to the dates or the provisions of the contract. Your deposit will be returned to you if your loan is disapproved or an inspection resolution cannot be reached. So long as these are done in a timely manner.
The Contract Gets Accepted – Now What?
After the buyer and seller reach agreement on the details of the contract and both have signed either the original offer or a subsequent counterproposal, the focus turns to fulfilling the various contingencies set forth in the contract. The major contingencies are loan approval, inspection and title documentation.
The first order of business is to alert your lender and provide to them a copy of the contract. At this point you will have the opportunity to lock-in an interest rate and firm-up the details of the loan program in which you will pursue. As the lender prepares your file for submission to their underwriters you will be asked to provide documentation of assets, income and anything else they feel that they will need. They will also be asking for money to pay for your credit report and appraisal.
Inspection
The inspection of your home is most important and setting up a general home inspection should be done as soon as possible after contract acceptance. During the typical 10 day inspection period a buyer has the right to inspect the house, check on crime reports, check with the city regarding future development and any other inspections that any particular house may need. After the inspections are complete the buyer has three options: terminate the contract, move forward with the house in as-is condition or provide the seller a list of unsatisfactory conditions. The most common is the later. Once a list is provided a negotiation ensues between seller and buyer to find an acceptable solution. If an agreement is not met the buyer has two options: to let the contract expire or to waive all inspection objections and move forward as-is. To learn more about the inspection process click here.
In Colorado the seller is required to provide to the buyer title insurance which insures clean and merchantable title. Basically, the house must be transferred without any title disputes. The title company will do a title search and disclose to the buyer any recorded documentation that will transfer with the house. Common examples of the exceptions to title insurance are homeowners association covenants, development documentation and utility easements.
Appraisal
Your lender will order an appraisal on the property. Having a third party asses the value, helps the mortgage company evaluate their risk in their investment. If the appraisal comes in less than the purchase price (this is happening quite a bit), the buyer has three options: re-negotiate with the seller, put additional money down to keep the loan-to-value ratios in line, or to terminate the contract.
Final Walk-Through
Just before closing it is a contractual right for the buyer to do a final walk-through. This is the time to check that all inspection items have been completed as well as check on the overall condition of the house. If something were to happen to the house between inspection and closing the seller is obligated to fix it.
Closing
Once all of the contingencies have been met you are ready for closing. The closing day is set forth in the original offer but the closing time is usually worked out by the Realtors about two weeks in advance. The closing takes place at the title company and it usually takes a little more than an hour. A day or so before closing the title company will provide to the buyer a settlement statement that will show exactly how much the buyer will need to bring to closing in the form of good funds. Good funds can be a cashiers check or a bank to bank wire. At the closing the title officer will guide the parties through the various documents which need to be signed. After all of the signing is complete and all of the money is accounted for the place is yours! It’s time to move in.
