CONTRACT TO CLOSE

By: David Collins, Realtor ERA Beverly Hills- 352-422-5297

Your home has been listed, shown, and you have agreed upon an offer with a buyer. YEAH….. But the job is not finished yet. I do not want to scare you but there are still a few more steps to go before you get your proceeds and that is why I am writing this so that you know what to expect. With this being said, I am going to cover as many situations that can happen but there could be other unique situations that occur in your situation. Regardless, this white paper will give you a very good idea on what to expect and how to handle these situations.

PLEASE NOTE- This white paper bring up the worst case scenario in some of the situations. As a agent that has done over 100 seller, it is my responsibility to bring up each and every possibility so that you are educated but with that being said, most transactions do not involve the worst case scenario.

1 to 15 DAYS AFTER CONTRACT HAS BEEN SIGNED

There are a few things that happen in this time period which are, the buyer deposits the escrow deposit, the buyer starts the loan process, and most importantly the inspections are scheduled and start to take place. In the state of Florida with an As-Is contract, the buyer has 15 days to conduct inspections. Usually they do three inspections in this period and they are, a general home inspection, a wood destroying organism termite inspection, (WDO) along with a septic inspection. All inspections are the responsibility of the buyer and are paid for the buyer unless it is a VA Loan and the seller pays for the WDO inspection which is roughly $75.00 dollars.

AS-IS CONTRACT INSPECTION PERIOD- In the state of Florida with an As-Is contract, the buyer can walk away from a contract within the first 15 calendar days and receive their escrow deposit back. With that being said, you as the seller will be afforded the same luxury if you are buying another home in Florida and every buyer that would buy your home has the same right so at the end of the day, you just have to pray that they don’t get buyer’s remorse.

SAFETY NOTICE- All inspectors and appraiser must have appointments before entering your home. Usually, the buyer’s agent will contact the selling agent, and your selling agent will contact you to set up all appointments. It is a good idea that you are not home for these inspections so they can get there job done. TIE THEORY- A lot of home owners want to be around for the inspection but most inspectors do not want anyone around so they can come in and do their job. The reason I bring this up is that I strongly suggest you allow the inspector to come in and do their job and leave for the time they are there. The reason I suggest this is because there could be things that could be put on the report or left off. If you are cooperative and allow them to do their job, they will be more apt to not be as picky. If you follow them around, they are going to be pickier because they are being paid by the buyer. I am sure you can see my point.

GENERAL HOME INSPECTION- This can be done by an independent licensed home inspector, it can be done by the buyer, or a representative of the buyer. This inspection usually takes 2 to 3 hours to complete. If the buyer is hiring a licensed home inspector, the inspector is a member of the Realtors board and will be entering your home. He or she will have a Supra Key to open the lock box to gain entrance. If the buyer does not hire a licensed inspector, the buyers Realtor will accompany the representative when he is on your property.

Regardless of who does the inspection, there might be some repairs that are brought up from the buyer to the seller. If there is, there are numerous options, as you the seller can take.

-Number One- Since the home is as-is, you can elect not to do the repairs.

-Number Two- You can fix all the repairs that are brought up by the buyer

-Number Three- The buyer cannot request that you do any of the repairs and move along with the sale.

-Number Four- The buyer and you can negotiate a price reduction from the original agreed upon price to take into account for the repairs that need to be done.

-Number Five- Worst case scenario, the buyer can deem that the home is not up to their expectations and walk away from the deal.

There is no steadfast rule on repairs and every situation is different but usually it is part or all of the above choices and as your agent, I will sit down with you and go through all your choices. With this being said, If your home had numerous offers and could be put back on the market and sell in days, you have a lot more leverage throughout the process whereas if your home has been on the market for a while or you got a higher than expected price for your home, you might have to work with the buyer to keep the deal together.

DAVID’S EXPERIENCE- I find this part of the process to be stressful on most sellers because they have usually feel they have given enough on the first part of the negotiations and do not feel they need to do any more BUT as I mentioned above, if the buyer has more leverage, you as the seller should expect to see some type of advance from the buyer in this stage whereas if you have the leverage, it usually helps in this stage. With that being said, I have found that if I make it CLEAR to the buyer’s agent and the buyer that you the seller has given all your going to give in the first negotiations it usually helps in the fact that the buyer doesn’t come back with nick nack items. Now, if there are serious repairs, it doesn’t matter how it is presented at the first negotiation, the buyer will be requesting repairs.

I will also note, that when an agreement has been made on the first negotiation and it is in big time favor of the seller, I have found that these are the contracts that the buyer has a higher percentage of “buyer’s remorse” and walks away from the contract.

BOTTOM LINE- Buyers ultimately figure out that it is not a win for them and they either request a high amount for repairs or they walk away from the deal.

WOOD DESTROYING ORGANISM INSPECTION- Because this is a less costly, most buyers will use a certified termite company to do this inspection. The inspector will have a Supra Key to gain entrance into your home and is licensed. With this inspection, it is pretty cut and dry, they find termites or they do not. This If they do not, the sale moves along, if they do, the buyer and seller have the same options as discussed above. The only issue here is that termites is much different because there is more mystery to the fix. It could be a small problem or it could encompass a larger area and nobody knows until they do further investigation. Because every situation is different, we need to take each situation separately.

SEPTIC INSPECTION- This is usually the last inspection and it takes place if you have a septic system. One of the septic companies comes out and does the inspection. They will dig a small area of your lawn to be able to get to the septic area. The inspection takes place outside and nobody has to come into the home. This inspection usually takes an hour and the buyers/sellers have the same options as with the other inspections but like the WDO, this inspection is pretty cut and dry. Either the system is good or it is not.

POOL, AC, ROOF, LANDSCAPING, and OTHER MISC INSPECTIONS- A buyer can bring in any type of inspector to the home but they cannot gain entrance to your home unless they are licensed through the Realtor board or they are accompanied by the buyers real estate agent. I realize this can be nerve wracking and a hassle but it is within the contractual rights of the buyer.

REGARDLESS OF PAYMENT METHOD, MOST BUYERS WILL DO SOME OR ALL OF THE BEFORE MENTIONED INSPECTIONS.

LAST THOUGHTS- As I mentioned, this part of the process can be very stressful and a good agent is worth his/her weight throughout this process. They can set the expectations before the inspections start.

TITLE COMMITMENT- As the inspection period is coming to an end, the title company is sending out a title commitment that states that there are no liens on the property and all the permits and other administrative workings with the home are up to date and you are able to sell your home.

LOAN APPLICATION- During the first 5 days, as per the contract, if the buyer is financing the home, they need to be working with their lender to start the loan application process.

APPRAISAL- Usually the appraisal is ordered and appointed around the 15^th day of the transaction. Sometimes it is sooner and other times it is later but if the buyer is doing a mortgage, there will be an appraisal. The appraiser does most of their work outside of the home and only needs access for roughly a half an hour. The appraiser is licensed through the Realtor board and has a supra key to gain entrance. After the appraisal has been done, it can take up to 10 days and even longer to get results and if it meets value, the appraiser does not tell the seller the amount it appraised for.

If it does not appraise, the appraiser will give it a value under the agreed amount. As the seller, you have a few options. You can meet with the appraised price and the deal moves forward or you can negotiate with the buyer to meet somewhere between agreed price and appraisal price. Usually when this happens, the buyer expects the seller to come down to the appraised price but every situation is different.

VA LOANS- With Citrus County having numerous Veterans (THANK YOU FOR ALL YOUR SACRIFICES) we see a lot of VA Loans being used to purchase homes here. With that being said, VA Loans have a few things that are different from a conventional loan. First off, there are fees that are usually the responsibility of the buyer that the seller is responsible for with a VA and those fees are a WDO Inspection, (Roughly $85.00) and loan fees if the lender is not VA Approved. The good news is that most lenders are approved so that the out of pocket expense is only the WDO. There are also stated repairs that go along with a VA loan but in the initial negotiations you will limit your exposure to these fees.

FHA LOANS- An FHA loan is loan designed to limit the amount of money that is put down vs a conventional but this should not scare you away from accepting a buyer that is using this type of loan. Yes, the buyer seems like they are getting the better end of the stick but when a buyer is borrowing money they do not have the same negotiation power as if they were paying cash so most of these offers are above what you expect with a cash buyer.

MORAL TO THE STORY- Even though there are a few steps more with a VA or FHA Loan, you have to look at your net figure to decide if it is the right situation for you.

SELLERS CONCESSIONS- Seller Concessions are the most misunderstood part of any offer/contract. Basically seller concessions are a form of a rebate that the buyer will be credited in cash at closing. An example is if your home is listed for $200,000 and the buyer requests 3% concession it will break down as follows: $200,000 minus $6,000 (3% concession) which makes the offer for your home $194,000. This is very simple math especially if you are happy with the $194,000. BUT MOST EVERY SINGLE TIME, as we get closer to closing, most of my sellers start questioning the $6,000 seller’s concession and think that they are getting the bad end of the stick. Let me explain why you are not. First off, when a buyer is coming in asking for seller concessions and financing, there is a premium that they have to pay for this. Just like buying a car at a buy here/finance here, we all know that those cars are more expensive. Also, the buyer has less leverage when it comes to asking for repair concessions. You can say no much easier vs a cash deal. Now with all that being said, take a look at the following two offers: Assuming if you had the 45 days to wait for close, which offer is better?

Asking Price:                                                      $200,000                                              $200,000

Cash Offer:         (Close in 30 days)                                                                                $190,000

VA Offer with Seller Concessions 3%:                $200,000  (Close in 45 days)

Minus Concessions:                                               $6,000

Minus WDO Inspection:                                              $85

Minus Closing Costs: (Roughly 8%)                    $16,000                                                  $15,200

TOTAL NET AT CLOSING                                $177,915                                                $174,800

I will also add, that most cash closing are going to take roughly 30 days so you are only gaining 15 days and I can tell you that cash buyers will be more aggressive when it comes to asking for repair concessions.

BOTTOM LINE- You need to look at your TOTAL NET AT CLOSING to make your decision.

UNDERWRITING PERIOD

After the Inspection Period has come to an end and both parties are looking forward to their moves, we go into the Underwriting Period which is the time in which the bank underwriters work on putting the loan together for the buyer. Usually there is not much going on at this time to communicate from the selling real estate agent to the seller but even though there is not a ton of discussions, you as the seller need to be packing and moving.

PLEASE BE ADVISED- If it is a cash deal, there are no appraisal or underwriting periods.

PACKING AND MOVING

As mentioned, after the inspection period, it is time for you to move full force into packing and moving. A few things concerning furniture. A lot of sellers want to include some or all of the furniture in the deal, which is fine but it has to be negotiated on a different contract and it has to be paid for by the buyer to the seller. The other point I want to make about furniture and other personal items is that you NEVER get even close to the full value that you are expecting from these items so keep that in mind when planning your move. Does it make sense to move your furniture vs replacing it.

SURVEY

If there is a mortgage on the home or if the buyer choses, they will order a survey and it is their responsibility to pay for it. With that being said, sometimes the surveyor shows up without contacting either agent. They do not have to come into the home so they are lax about setting up an appointment.

HOME SALE CONTINGENCY

On a great deal of contracts, the buyer will need to sell their present home to be able to afford to buy your home so they will put in your contract a contingency that states that they need to sell their existing home and if that sale falls through, they can walk away from your sale and receive their escrow deposit back. With that being said, not all home sale contingencies are the same. First off, you need to look and see if their present home is under contract. Yes, a lot of buyers think they can put a home under contract without having theirs on the market or even pending. In my experience, this is a very risky contingency and should be avoided. Now, the good news is that most of the time, the home will be under contract. From here, you need to look and make sure how far along is the contract. (Has it gotten out of the inspection period?) Also, how is the home being financed, and if there are any contingencies on that contract. I can go on and on, but every situation is different and you will need to consult with your Realtor to see if it makes sense. Bottom line, there is going to risks while selling your home, all you can do is try and minimize them.

SELLER UTILITY SHUTOFF, TANK RENTALS, MAIL CHANGED, and HOME VENDORS

With about 2 weeks before closing, you will want to touch with your utility companies, tank rentals, post office, and your home vendors to let them know that you will be moving. When you call the utilities, you want to shut off your service at midnight of the day you will be closing. Same with Tank Rentals. You will also want to fill out a change of address form on line or at the post office and make arrangements with your vendors.

INSURANCE

As you can imagine, you want to keep your home insurance intact until your home closes. With that being said, most insurance companies will prorate your policy and refund the amount that is not used. My suggestion is to call your insurance company and discuss what is the best method to cease your insurance. PLEASE NOTE- Please discuss with your carrier how to handle if the closing gets delayed. The last thing you want to do is cease your policy on the day your home is suppose to close and there is delay and something happens. Have this conversation with your carrier. They will give you the best advice.

HUD/ALTEL BALANCE SHEET

Roughly a week to 3 days before you close, you will be getting a closing balance sheet explaining the transaction and how much money you will be receiving from the closing. It will break down the sales price along with all your expenses. The following are the major expenses you will see on your statement.

TITLE INSURANCE

It is customary in the state of Florida for the Seller to purchase Title Insurance, insuring the title for the buyer from defects and liens. Yes, this can be negotiated, just like anything else but it will ultimately effect the sale of your home.

TAX PROATION

In Citrus County, ad valorem taxes (homeowner taxes) are paid in arears, so you will be responsible for the taxes from the January 1 of the year you sell your home to the day it closes. The taxes will be prorated and you will see a debit on your closing statement. From there, the buyer will be responsible for paying the whole tax bill at the end of the year.

MORTGAGE PAYOFF

If you have a mortgage on your home, 99% of the time you are required to pay it off at the time of closing. The title company will ask for you to fill out a payout form so they are able to contact your lending institution and receive all the payoff information. The title company will make arrangements with your lender and payoff your mortgage balance from your proceeds.

REAL ESTATE SALES COMMISSION

As the seller of the home, you are responsible in most transactions to pay the real estate commission for both agents that are involved in the sale of your home.

DOCUMENTARY STAMPS

As the seller, you are also responsible for the documentary stamp tax. As any other tax, there is no getting around it. It is .007 of the sale price of your home.

ESTOPPEL FEE

The estoppel fee is the charge that your home owners association charges for the title company to transfer the ownership on their books and to make sure your current on the HOA fees.

As I mentioned in the beginning, I have tried to discuss most situations that come up but unfortunately, some deals/situations will be unique and will have to be worked out when they happen.

If you have any questions concerning this white paper please contact me at 352-422-5297

If you are looking to sell your home. Please contact me at 352-422-5297

David Collins Realtor ERA American Investments.