Leigh Anne Monk: Now that we have a ratified contract there are several things that have to occur between the actual contract being ratified and settlement day. So we are going to discuss that in this segment.
Mark Wozniak: One of the first things that happens is part of that ratified contract. The buyer committed what is known as a certain amount of earnest money. It’s also called a deposit. And if you will, this is the buyer’s financial skin in the game during this time period before settlement, where they are actually putting up a financial amount that is going to be at risk if they default on this contract and end up not purchasing your home other than if it is a contingency that falls through, which we’ll talk about in a little bit here.
But that earnest money gets deposited with an escrow agent. That escrow agent is often the brokers of one of the agents involved - real estate agent involved in the transaction - either the buyer agent or the seller agent. Or it can be the actual title company that’s going to do the settlement. So that check gets deposited and then the title company that is going to serve (do the settlement) which also was named in the ratified contract - they will be notified of the contract and it will be sent to them and they will get started on checking the title of your home to make sure that the title is clear, and check to see if there have been any liens placed against your home.
Depending on the lender in the contract involved they may need to order a boundary line survey of your home so you can expect surveyors may need to be coming out to your property to check your property lines. And then there is often a termite inspection that gets ordered as well so you can expect the termite company to be coming out to your house as well.
Leigh Anne Monk: Right and the primary thing that happens in this period we like to call "contract to close" is really the process of removing the contingencies that have been in placed in the contract that allows the buyer to get out of contract with no financial loss to him if they're not met.
Mark Wozniak: Right, so that earnest money that I talked about earlier…
Leigh Anne Monk: Could be lost, correct?
Mark Wozniak: If they get out of the contract for one of these contingencies they wouldn’t lose that money. It would be returned to them.
Leigh Anne Monk: Correct. Exactly.
Mark Wozniak: But if they default for some other reason than they could potentially lose that money and it would go to you, the homeowner.
Leigh Anne Monk: Exactly, exactly. The primary contingencies are in the area of finance and the areas of home inspections, in the area of HOA and condo fees or HOA and condo documents. Excuse me.
Mark Wozniak: Right and HOA is "Home Owners Associations".
Leigh Anne: Thank you. I always get caught up in the acronyms sometimes. So when it comes to finance what happens is the contract will typically have a fourteen to twenty-one day period - is the time frame we are seeing now - in which the buyer's lender has to go out and conduct all their due diligence to make sure that buyer is fully qualified.
You would have received a pre-approval letter from the buyer’s lender at the time of the actual offer that says, "Yes, their basic credit looks fine. They make enough income to support this mortgage," etc. They have to do some additional due diligence that happens in this fourteen to twenty-one day period.
In addition, an appraiser comes out from the bank and that appraiser’s job is to view the home, look at the comps, look at the comparable homes sold in the neighborhood to make sure the price the buyer and seller have agreed to is the price that the loan can support and the bank can support without having undue risk to the bank. So once that appraisal gets done and the appraisal comes in at this asking price, there is actually a document that gets signed by the buyer that says, "We’re releasing this contingency. We now have full loan approval and we have an appraiser, an appraised value that meets this price."
If, for example, the appraisal come in too low, that really does open up new negotiations because what that is telling the buyer is that his loan can only be for “x” amount and if that “x” amount is lower than the agree upon contract price they have a delta they have to come up with.
They either have to pay for it themselves. Or they may come back to you as the seller and ask you to compromise and give a little on your price or they may want out of the deal completely because they just don’t want to pay that much and you don’t want to lower your price that much. All those are factors that happen during the appraisal review process.
Mark Wozniak: Right and that is why we always say that the appraiser, whether you like it or not, is intimately involved in helping to set the value of your home.
Leigh Anne Monk: Exactly. The second contingency that occurs is the home inspection and that is done by the buyer. The buyer hires an inspector to come into your home. They spend three or four hours looking at all the structural elements of your home. Once they complete that inspection they will prepare a document that has a list of suggested repairs that they’re asking you, the homeowner, to actually either resolve or you either have to come back and say, "I am going to give you money to get this done."
They may ask you to repair it yourself directly. All of those repairs and/or resolutions have to occur before settlement, prior to the settlement date. And then once those are agreed upon and there maybe some negotiation back and forth. That’s what your agent will do for you - helping you with that negotiation. You come to an agreement. You have a signed document that says, "Repair, 1, 2, and 3 will get done by settlement." That gets done and in that timeframe you’re going to be hiring contractors if need be to make those repairs and then that inspection contingency is released saying that now that all these repairs are going to be made. We can continue to go forward with the contract.
Mark Wozniak: Right, or depending on the way that that contingency was structured the buyer - if you cannot reach agreements on the repairs being done or that you the homeowner will take care of them - the buyer may be able to void the contract again without any financial penalty. It just depends on how it was structured.
Leigh Anne Monk: Exactly. And then the final contingency is the home owner association documents or condo document. If your particular subdivision is governed by a homeowners association, you as the seller have to send them a copy of the current set of documents that govern the rules and regulations, how things are run within your association.
The buyer has a certain timeframe to come back to review those and come back to either accept the document as is or they can use that as another reason to get out of the contract, simply stating that they can’t comply with these rules and therefore they can’t live there and they can actually get out of the contract.
Mark Wozniak: Right, and this is one that we have very little leeway to change because it is actually state law that the buyer is going to have the opportunity to review these documents over a predefined statutory timeframe.
Leigh Anne Monk: Now the good news is what we do when we represent you as a seller is that we encourage you to have those ready as quickly as possible and get them to the buyer quickly as possible so we don’t have, everything is moving along fine and day 25 we have condo documents going out and they now have another timeframe to get out of the contract.
We like to get them to the buyers as quickly as possible to have that contingency removed pretty quickly so we can move forward with settlement.
Mark Wozniak: Right, and there are other contingencies but they’re a little bit more rare and again I’d say the two most prevalent ones are the financing and the home inspections and really with the home inspection there is just so much to talk about there and so much detail that we would encourage you to view another separate video that we’ve prepared on this topic. There’s a host of information and we even interview a home inspector so you can see more about what that process is like. So these are the major tasks involved with what Leigh Anne has said is called kind of the "contract to close" period.
Really the last step in the home selling process, the journey, is the actual settlement of your home - settlement day - and we are going to talk about that in another segment.