In our last post, we tried to deliver an in-depth guide to the home buying process. However, we felt there were some parts we’d like to expand on — namely the closing phases. When it comes to finally picking a house, you’ll need to start thinking about negotiations, escrow, and the home inspection. So, without delaying you another moment, let’s dive into what matters:
Writing & Negotiating Offers
Once you have found a property that you want to make an offer on, your agent’s expertise comes into play. Since virtually everything in a real estate purchase can be negotiated, you will want an agent that is skilled in negotiations. Your agent needs to be capable of juggling a number of variables as negotiations continue. You as the buyer might choose to give in a little bit on one issue in order to gain something elsewhere in the negotiations.
Although purchase contracts have a lot of what’s typically called “boilerplate” language, it is a fact that many elements of a contract can be modified when the buyer and seller both agree. The obvious negotiation will be over price. However, there may be a variety of other addendums or special terms that need to be added to the contract. For instance, an addendum might be included to make it an “as is” purchase.
When you’re making an offer of purchase the contract will typically be accompanied by what is called a loan status report (LSR). This form comes from your lender, and it establishes that you are qualified (financially) to obtain the mortgage necessary to purchase the property.
The process of determining what to offer for a property often includes the agent preparing a comparative market analysis (CMA). This is an analysis of what other homes in the neighborhood have sold for recently. Buyers are often tempted to make “lowball” offers. However, this often can antagonize sellers. The risk is that the seller, with many memories tied up in their home, will stiffen in their negotiating resolve and resist compromise.
Once the purchase offer is accepted by the seller, the time to closing is usually 30 to 45 days. However, a cash purchase can often be completed in as little as 21 days.
Setting Up The Escrow Account
An escrow is:
an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually agreed conditions by the transacting parties. [Source]
After the buyer and seller agree on a purchase price and sign the contract, the title company will set up an escrow account. The title company will provide the buyer with an earnest money receipt. The title search is conducted to establish that the seller has a legal right to sell the property. The title company gets payoff information regarding any liens on the property, including the common first mortgage. The company also calculates the interest on taxes and other expenses that need to be calculated up through the day of closing.
Once the buyer and seller agree on the calculations, the title company will prepare a closing statement along with all other legal documents necessary to complete the sale. Escrow closes when the recorder in the county reflects the fact that the property has been in fact conveyed from the seller to the buyer. Now, the property has a new owner.
The property inspection typically occurs after the purchase contract is signed. The buyer is given a set period to complete a professional home inspection. This step is optional, but if the buyer declines, he or she is essentially accepting the property “as is”. Prior to a home inspection the seller provides the buyer with the sellers property disclosure statement. This is a good starting point for the property inspector because it details any defects that the seller is aware of and is legally required to disclose.
The professional inspection will usually last two to five hours. The buyer should be present for part of the inspector’s visit so that the inspector can personally discuss what is being found. If a serious issue is uncovered, additional negotiations may be required with the seller. The buyer establishes that the home inspection is complete through a Buyers Inspection Notice & Sellers Response (BINSR), which is delivered to the seller’s agent before the deadline.
Normally, the inspection is done in a timely manner and the parties figure out the financial implications of anything serious that the home inspector discovers. Once those issues are resolved, the sale of the property proceeds and the closing will occur. The buyer will have successfully purchased their new Louisville home.