Communications & Contracts
NOW THAT YOU HAVE A CONTRACT NOW WHAT?
A cheat sheet of important events, deadlines, tips and need-to-know information for a stress-free & successful closing.
Realtor Lockbox off, Combo Lockbox on. We may decide to remove your Realtor (Sentrilock) lockbox and put on a combination box within a day or so after we ratify a contract. We do this so that random agents can’t enter your house. We will provide the combo box code only to the appraiser, wood destroying insect inspector and/or buyer agent, as needed, and will let you know in advance when they are coming. At this time the listing status will change from Active to Contract Pending Contingencies. We may also remove marketing materials from inside the home and put up an Under Contract rider.
Your buyer agent will send you a “Seller Information Request Sheet” within days of ratification. Please get this back to them as soon as you can. This will document certain necessary information, such as your loan payoff information, HOA/Condo association details, etc., which the title company will need in order to get the paperwork and payoffs ready for closing. If you will need a Power of Attorney prepared, or if your home is held in a Trust, let me know in advance.
HOA DOCS: We will order them for you. They typically cost anywhere from $150 to $250, but can in some instances be more than that. If you have two associations, it will be more. They will send their invoice to the settlement company for payment from closing. Note: If I have already given you a “Seller’s Estimate of Proceeds,” the projected $$ number for these disclosure documents is itemized there. We typically order these disclosures right after we ratify a contract. They can take 1 to 2 weeks for an HOA/CONDO to process. Once we receive the documents, we will turn them over to the buyer. Under state law, the buyer always has a 3-DAY REVIEW PERIOD AFTER RECEIPT OF THE DOCUMENTS, WHERE THEY CAN UNILATERALLY VOID THE CONTRACT.
If we deliver on a Tuesday, they have until Friday at 9:00 pm to void if they so choose, with no questions asked.
Violations: One of the main things I check for in the documents is “violations.” If we have any existing HOA violations (maintenance issues, improvements made without HOA/Condo approval), we are bound by the contract to correct those and get them cleared for the buyer prior to closing.
HOME INSPECTION
“X” days Initial Contingency, “X” days Negotiation Period The buyer agent will let me know when they plan to do their inspection. You really should plan to be out of the house for the inspection. The agent, buyer and inspector will be present, and they want to feel free to talk about the home without the seller “hovering.” They can take anywhere from 2 hours on condos to 4 hours on larger single-family homes. Please make sure that they can access all areas of the house -especially electrical boxes, sump pumps, HVAC equipment, attics, etc.
The buyer has the specified number of days in the contingency period to complete the home inspection and deliver to us a copy of the full report from the inspector, along with a separate addendum containing any items they are requesting that we fix (or provide $$ credit for).
Be prepared for a number of items to be listed in their repair/ replace/ credit request. This is the single biggest hurdle to navigate towards our end-goal of a successful closing. I encourage you to keep an open mind, try to keep your blood pressure in check, and to “think like a buyer” during this phase of your transaction. Typically, we will get a list of between 5 and 15 repairs items, though I have had as many as 35 or 40 requests and as little as 0.
Typically, these repairs are not cosmetic in nature (or at least they shouldn’t be). Roof leaks, plumbing leaks, wood rot, window issues, electrical problems, HVAC and other appliance issues, etc. are generally what we see.
Once we receive the list we will have a few options:
- Saying ‘Yes’ to all repairs – we will have until closing to complete them
- Saying ‘No’ to all repairs – may cause the deal to fall apart but will depend on your leverage
- Counter with the repairs – we will / will not agree to
- Offer a credit in lieu of repairs or some combination of the two
Handing a list to our contractors to repair agreed-upon items is the best solution for you. If we try to negotiate a credit, the buyer will ask for additional inspections to estimate costs. Their contractors will give much higher pricing than we would pay, and may find other items. We hand the list to our electrician, plumber or HVAC person and solve this problem.
Unless otherwise agreed to in writing, ALL REPAIRS MUST BE DONE BY A LICENSED AND QUALIFIED CONTRACTOR. Receipts stating exactly what items were repaired and a paid in full statement must be provided to us no later than one week before settlement. Feel free to supply the exact wording within the home inspection agreement to your contractor, so they may echo that wording on the receipt. If you intend to have any repairs performed by a non-licensed individual, definitely talk with me about that ahead of time, so I may negotiate that agreement with the buyer. One example might be changing a burned out light bulb.
Our “Negotiation Period” begins when we receive the buyer’s addendum. We have until the end of the Negotiation Period to come to agreement on what will and won’t be done. In consideration of the buyer removing their inspection contingency, can’t come to terms in the specified time period, then the buyer will have a “Purchaser Election” period, typically 2 days or so, in which that they are allowed to void the deal.
Radon Inspection
They will let us know when they plan to do their test for radon. Often, this is coordinated along with the home inspection. An inspector will drop a “lunch box” looking device in your basement. They will come back 2 days later and pick it up to get the results. If the house tests over the EPA “safety” benchmark of 4.1pCi/L then the buyer will likely ask us to remediate.
Radon remediation typically costs around $800-$1200, when needed. The highest risk of high radon levels may be in basements with no walk-outs and/or no full-size windows. During the testing period, you will be asked to keep all windows closed and doors closed except for normal entry and exit (but not left open).
Wood Destroying Insect Inspection (termites)
Someone has to pay for the +/- $35 inspection. It’s about 50/50 whether the buyer or seller pays for the inspection, and it’s in the contract as to who will order it and pay for it.
The inspection has to be done within 30 days of closing. 80% of them come back clean. If they find a need for any type of treatment for termites (or carpenter ants or powder post beetles), the sellers ARE required to treat before closing and that is non- negotiable. This is lender required, and, if needed, treatments typically run $400- $700. This additional charge can be added to the settlement charges.
It doesn’t matter if you are home or not, the licensed inspector will be provided access. It only takes 10 or 20 minutes, but they do need brief inside access.
Need Professional Movers?
If you will be using professional movers, you’ll want to line them up and get on their calendar for your scheduled move day, as they can book up far in advance. Unless we have a negotiated rent-back, you’ll need to have everything packed up and out a couple days prior to closing. If you’d like recommendations on movers, just ask me.
Survey
At some point you may see someone wandering around your yard doing measurements for the survey. Don’t be alarmed as this is for the buyer. As a courtesy, they should announce/introduce themselves but, just in case, that’s who it is.
Appraisal
The appraisal contingency will typically run 21 days from ratification. The lender orders the appraisal through a 3rd party. Expect to get contacted by an appraiser somewhere between 7 to 14 days after we get a contract. For the actual appraiser visit, you may be home or not, either one. Ideally, we’d like the house to be picked up and looking good for the appraisal, which typically takes about 30 minutes. The appraiser will walk through the house, take measurements, photos of every room, and note upgrades. They are working to appraise the value of the home compared to recent sold homes around you.
If the appraisal comes in less than the contract price, the buyer can void the deal if we aren’t willing to come down to the appraised value. With FHA and VA buyers, they can actually choose to void the deal regardless.
The lender will only give the buyer a loan as a percentage of the appraised value, which means they would have to come up with the difference in cash unless we come down in price to the appraisal figure, or reach a compromise with them. Sometimes the buyer just doesn’t have the cash, sometimes they have it but aren’t willing to proceed based on the fact they now feel they are overpaying.
We can choose to come down all the way to the appraised value, we can say no that we aren’t willing to come down, or we can attempt to negotiate and make a (compromise) deal. Each deal and buyer is different, but these are our options. We probably see low appraisals in 5% to 10% of transactions.
The odds of a low appraisal can increase when a home contains an extreme amount of upgrades or is under contract for considerably more than your neighbors’ homes have sold for.
Appraisers are looking primarily at sales within a mile of your home, which have closed in the last 90 days. If they don’t have enough data they will go back slightly longer and look at a slightly larger area, if need be.
Utilities
Two weeks prior to settlement, remember to call your utility companies to inform them of the upcoming sale. Email us the names of the utility companies that you use and schedule to transfer out of your name for the DAY AFTER closing. We do this to ensure the utilities remain on through closing (per the contract) and we don’t have any last minute surprises. The buyer will call ahead of closing and schedule the transfer into their name to be effective the day of closing.
Homeowner’s Insurance
You’ll want to contact your insurance agent, with request to terminate your policy 3 or 4 days after settlement The idea is to retain coverage in place until the deed is recorded. If you will be renting back for a short time after closing, you’ll want to make sure your insurance company knows this, so that you have appropriate coverages in place – without paying any more per day than necessary (as you’ll no longer own the home).
Walk Through
The buyers will do a final walk through inspection, and I will let you know when. It’s typically a day or two before closing and sometimes the morning of closing. They actually have the contractual right to one or more “inspections” up to 7 days prior to closing.
Please be sure to have all agreed-upon repairs completed (and have contractor receipts sent to us) no later than 1 week prior to closing. If you have moved out already great; if not, some buyer agents will wait and do their final walk through after you have moved out, even if it’s right before closing.
The house must be completely vacant before closing. You must leave the house in “broom swept” condition. As a courtesy to their buyer, many sellers choose to thoroughly clean the property themselves or have the home professionally cleaned. Talk to me about any holes in the walls larger than a dime, as they may need to be repaired. Smaller holes can be left. All appliances, lighting, fans, curtain rods, and blinds typically stay unless otherwise agreed upon. The actual curtains are defined as “window treatments” in the contract. If we checked “Yes” then they must stay. If we checked “No” then you can take the curtains with you.
All areas need to be cleaned out of construction materials, flower pots or trash including under the deck, or in the basement, crawl space, storage shed and garage. Extra tiles or hardwood flooring that matches your home may be left in the garage.
If you anticipate any of this being an issue, please talk to me beforehand don’t wait until closing day.
Settlement
On the seller side, we can expect a closing disclosure three days before closing, which shows the “bottom line” or your net proceeds. Lenders are required to provide your Closing Disclosure three business days before your scheduled closing. Please use this time wisely. This tool will help you double-check that all the details are correct. If something looks different from what you expected, ask why. Now is the time to resolve problems, if the explanation you get isn’t satisfactory, keep asking questions.
We will get a copy of the preliminary Closing Disclosure (formerly the HUD1 settlement) statement and review the numbers ahead of time to see if we have any questions or issues.
Also, remember to cancel any auto-drafts for HOA payments and your mortgage.
If you are closing in the first 7 to 10 days of the month, and if you would prefer, it’s OK to not pay your mortgage payment and HOA for that month.
The settlement company will prorate what you owe AND ADD 7 DAYS OF INTEREST and collect it as part of your loan payoff. The mortgage payment you typically make on the first of the month is actually for the prior month (mortgage payments are typically, “paid in arrears”, unlike rent).
If you think an HOA or mortgage payment might be posted within a few days of closing, please let us and the settlement company know to ensure they have updated payoffs at closing for both accounts.
For Settlement you will need to bring your valid license or other government-issued photo ID, as well as account information on where you want your proceeds wired. Typically, a voided check or wiring instructions is the preferred method. Your funds will typically post to your account in the afternoon one to two business days following closing. The sale will typically go on record in the county land records the next business day following closing, and then your funds will be disbursed. You can also choose, of course, to pick up a check or have a check mailed to you.
If you are buying right after selling and there are 2 title companies involved, please provide us with your contacts at the company where you are buying. We can coordinate everything so paperwork and funds can be wired directly from one Title Company to the other. If you need to bring funds to closing to complete the sale (to cover all selling expenses and loan payoffs), you’ll need to wire funds to the Title Company in advance. In this day of email fraud and hacking, wiring is the safest way to transfer funds. If anyone emails or calls you with a different set of wiring instructions, IMMEDIATELY CALL YOUR SETTLEMENT COMPANY TO CONFIRM before wiring any money anywhere.
The Settlement Statement Or Closing Disclosure
The first page primarily a summary of all numbers, many of which are brought forward from the Disclosure Form – stating of the final terms and closing costs, closing information, transaction information, and loan information. This page will show your payoffs for all mortgages and have credits to you for items already paid, such as prorated taxes and HOA dues. Last line on the front page shows “cash to/from seller”. This is your bottom line proceeds.
The second page details expenses the seller pays with the left column being items paid at closing and the right column items paid before closing. These can include HOA Resale packages, commissions, Congestion Relief Fee (1.5% of the sales price) and Grantors Tax (1% of the sales price). Both Congestion Relieve Fee and Grantors Tax are regulated by and paid to the County. Pages 3 and 4 are closing disclosures and signatures.
Two things can get confusing on the Closing Disclosure–your loan payoffs and your county taxes.
The Sellers’ payoffs are listed on page 1. When you pay a mortgage, it is paid in arrears, so a June 1st payment is paying for when you lived there in May. If you close on June 15th and paid your June 1st mortgage payment, you have lived there 15 additional days since your last payment, and the bank will charge a per day interest rate for those days which is included in your payoff. The other thing that title companies do (required by your lender being paid off) is to collect an additional 5-7 days of interest beyond the actual closing date.
This way, your lender is assured of receiving their full payoff to close the loan. Your lender is required to refund any un- used portion within 30 days of settlement. They will also include any balance from your escrow account. Most people have anywhere from $1K to $3K in escrow, depending on when your last property tax and insurance bills were paid.
You will also notice a tax proration to the buyer. If the buyer is going to be responsible for the next tax bill due to the county, then you will give them a per diem credit for the days that you owned the house but haven’t paid taxes on yet. Taxes are paid twice a year, normally in mid-late May and November. If your Lender has already paid the bill for that 6 month period and the buyer will be living in the home for time that you paid for already, you will receive a credit from the buyer on the first page.
Keys, Remotes,
Parking/pool/rec Center Passes, Manuals, Warranties
Please plan to leave all keys, garage remotes, mailbox keys, appliance manuals, warranty information, contractor receipts for work done, key fobs for HOA amenity access, and parking passes on the kitchen counter.
Also, bring to settlement any garage keypad codes, parking space numbers, mailbox number and anything else the new owner will need. It is also nice to leave any specific house information (sprinkler system map, alarm information, current landscaping service, etc.) that the new owners would find useful.