Think of your home sale divided into two phases akin to dating (hear us out).
First, your agent helps create that initial spark between a buyer and your house. The buyers like what they see and put in an offer.
You accept, and then the second stage begins: the buyer wants to get to know your house and draw out any red flags, hidden flaws or big surprises before this arrangement becomes official.
That’s right—even after the offer is signed, your buyers hold an immense amount of negotiating power. Look closely at that contract—notice all those little “contingencies”? They all represent opportunities for the buyers to back out without consequence.
Can’t come to an agreement on who should pay for a new roof? Home gets appraised under value? Water damage disclosure makes them anxious? Well, that can be reason enough for them to walk way.
The good news is that few deals fall apart completely once they go under contract, but you always want to put your best foot forward. We’ve picked apart the closing process and asked a few top real estate pros to walk us through those days and weeks after you accept an offer.
Here we’ll lay out a step-by-step so you know what to expect and your options at every twist and turn.
Getting from contract to closing, step-by-step
Step 1: Buyer and seller sign the purchase agreement
The purchase agreement contract, drafted by your real estate agent or attorney, spells out the agreed upon purchase price, necessary steps that need to happen before closing, as well as the closing date.
Remember that you need to be out of the house by the closing date, so set a realistic goal or contingency for moving.
Step 2: Escrow account opened to keep funds safe
At this point in the transaction, an escrow account managed by a neutral third party is opened to store all funds until the deal closes.
Step 3: Title company runs a title report for your house
Once you’ve accepted an offer, the escrow agent, title company or buyer’s agent will order the title report for your house to identify title issues, such trust complications, unpaid balances from lenders, or outstanding property taxes.
You can’t sell your house with any liens, judgments or debts attached to your property, so if any problems come to light, work with a real estate attorney to clear title so the deal can move forward.
Step 4: Earnest money deposit put into escrow
Once you and the buyers have signed the purchase agreement contract, the buyers will put forth an earnest money deposit, which will be held in escrow until closing.
The earnest money deposit is typically 1-3% of the purchase price (but may be as low as a few
thousand dollars) and is meant as good faith gesture that the buyers are serious about following through with this deal.
Step 5: Home inspection scheduled within a week to 10 days
Most residential real estate contracts contain what’s known as a home inspection contingency, which allows a potential buyer to back out of the sale of the home, should the house require significant repairs that you aren’t willing to make.
Once your buyer puts down a deposit on your house, they’ll then schedule the home inspection.
The inspection typically takes place within a week to 10 days after you accept the offer on your home. This period of time can be slow on the seller’s side, says top 1% Houston real estate agent, Judy Hayes.
“So, for that first 10 days, there’s really nothing that the seller does, except wait for the inspection to be completed and anything to be negotiated with regard to that inspection,” Hayes explains.
In preparation for the home inspection, make sure that all areas of your home are accessible— including access to the attic, basement, crawlspace, and furnace—to avoid having to reschedule the inspection, and possibly causing a delay in closing.
Most importantly, try to be out of your home for the duration of the inspection unless your home comes with unique features that require you providing a demonstration.
Remember, the buyer will often be present for home inspections, and you want them to continue to picture themselves living in your home, which is easier for them to do without you there.
After the home inspector evaluates the home and writes up a report documenting their findings, Hayes says that one of two things will happen:
“We’re going to come to an agreement of some sort for those inspections and move forward or, if we don’t come to an agreement, the buyer can terminate the contract and the home goes back on the market, and we start over. Normally, we come to an agreement with whatever that is and go to the next step.”
Step 6: Lender calls in home appraiser to value the home
If the buyer is financing their home purchase, their lender will need to conduct a home appraisal as part of the closing process.
Now, your waiting period is over, and it’s time to get to work.
Hayes says, “At this time I tell my sellers, ‘Hey, we’re through our option period, let’s start packing. Let’s get ready.’ They start packing on their end.”
Like the home inspection, the home appraisal contingency gives the buyer to the opportunity to back out of the sale, should the valuation of the home be significantly less than the purchase amount, or if significant repairs are required on the house.
Step 7: Buyer works with the lender on financing details
Typically, a buyer will be financing some or all of their home purchase through a loan. Your contract will also outline the amount of time you’ll allow for your buyer to apply and receive financing—typically between 30 and 45 days.
A financing contingency means that you understand that the offer you’ve accepted on your home is contingent upon your buyer being approved for a mortgage.
A financing contingency protects both you and the buyer, as the buyer is not obligated to purchase your home if they fail to secure financing, and you are able to entertain another offer on your house if the buyer can’t come up with the funds within a certain time frame.
Step 8: All the paperwork comes together at the closing table
Once your buyer receives financing, you’ll now be in a position to secure your closing date (or keep the proposed date, if all goes smoothly).
The good news is that you may not need to attend the actual closing and can often pre-sign all of the necessary documents to transfer ownership of your home.
The following is a list of documents you’ll be signing at closing, not including any additional specific documents pertaining to liens, etc.:
- HUD-1 Settlement Statement
The HUD-1 contains all of the financial information about the sale of your home. Read over this form carefully and double check the numbers before signing.
- Certificate of Title
The certificate of title is simply a form stating that you own the property and have the right to sell it.
The deed is the document you’ll sign to transfer ownership of the home to the buyer.
- Loan Payoff
If you have a mortgage on the home you are selling, the loan payoff document shows the amount due to pay off the mortgage and the amount being paid at closing )from the sale of the home).
- Bill of Sale
If you have included appliances, furniture or any other items with the sale of your home, the bill of sale transfers ownership and shows the price the buyer is paying for those items.
- Statement of Closing Costs
You will sign a statement of closing costs acknowledging that you were informed of the closing fees before the closing date.
- Statement of Information
The statement of information is signed after the title company has checked your identification and you swear by your identity.
Closing is considered complete once both buyer and seller have signed all the necessary documents, your mortgage balance (if any) is paid off by the sale, and all parties involved in the closing transaction get paid (including you!) making the transfer your home to the buyer complete.
Top issues that delay closing and how to navigate trouble spots
In a perfect world, your home will pass the inspection and appraisal with flying colors and your buyer will be approved for financing in 30 days—yay!
However, a National Association of Realtors study showed that only 74% of home contracts settle on time. So, if you hit some bumps in the closing process, don’t panic, you’re definitely not alone!
Alright, if you’re one of the 26% with a delay in closing on the sale of your home, it’s likely due to issues relating to the buyer’s financing, the home appraisal, or home inspection—the most common hold-ups.
Familiarizing yourself with some of the most common closing delays can help you keep your cool if your home sale falls off track from your initial timeline.
Prepare your house for the best possible home appraisal valuation
43% of home closing delays arise from problems with the home appraisal. Mortgage lenders use professional appraisers to value your home’s worth, using factors such as the selling price of nearby comparable homes, as well as your home’s location, square footage, amenities, and plot size.
However, says Hayes, pricing is an issue that’s dealt with from the very beginning when the selling price is set, so there shouldn’t be any surprises when the appraisal comes in.
Hayes tells her clients, “If you’re trying to list over this, you may have a problem. Our buyer may agree with it, but if we don’t appraise you need to know right up front, you’re going to have to come down on that price because it’s very unlikely our buyer’s going to come up.”
Preparing your house before the home appraisal can save you from headaches down the line, so work with your agent to identify and fix any issues before putting your house on the market. A messy, unkempt home with dirty dishes in the sink, overgrown hedges and siding caked in grime is not going to appraise well.
So, treat the appraisal like you would a home showing. Spend an afternoon cleaning up the yard, deep clean the inside of your home, and even touch up your paint on the outside.
Peeling paint is a common issue mentioned in appraisals that prevents banks from approving mortgages. Make sure you take a good look in and around your home and take care of the problem before getting to the appraisal stage to avoid any delays in closing.
If the appraisal comes in low, you do have options. While you won’t receive a copy of the appraisal report automatically, you can request a copy for review.
Look it over and make sure it accurately reflects your home’s true features, conditions, and specs, including square footage and number of beds and baths.
Bring any errors to the attention of the appraiser so that the report can be corrected. If you and your agent feel that the appraisal is way off the mark, you have the right to challenge the valuation.
Make sure your buyer gets pre-qualified
45% of closing delays are caused by issues related to buyer financing. Unfortunately, this is an area you don’t have much control over, other than being able to choose the right buyer.
The best way you can filter out unqualified buyers is to require they get preapproved for a mortgage before you sign the purchase agreement.
During pre-qualification, a lender assesses a buyer’s income, current debts, and credit history—which is a solid indication of their ability to afford a mortgage, assuming nothing drastic changes (such as the loss of a job) between pre-approval and closing.
Anticipate repair negotiations after the home inspection
If you know that your home needs a major repair, make the fix before the home inspection takes place so that closing isn’t delayed.
You can’t hide anything from home inspectors—they catch even the smallest of details, down to a missing outlet cover, so take care of any issues before putting your home on the market.
Hayes says that the inspection process typically doesn’t present any surprises for her sellers because she identifies red flags she notices ahead of time.
Says Hayes, “I’m very direct with my sellers so if I walk up and see something I’m going to point it out to them and say, ‘Hey, this is a potential problem. You either need to get in there and fix it or be prepared to negotiate.’”
The most common issues that show up on home inspections include: faulty wiring, poor grading and drainage, faulty gutters, basement dampness, roof problems, foundation flaws, poor upkeep, faulty plumbing, poor ventilation, and defective heating.
Stay involved and informed all the way to the finish line
It’d be foolish to sit back and relax after you accept an offer on your home—the truth is, signing the purchase agreement is only the beginning.
As Hayes points out—”That entire contract can be negotiated. You can negotiate price. You can negotiate closing costs. You can negotiate repairs. You can negotiate a combination of all those things”—and it’s guaranteed that your buyers will be ready for those negotiations.
They can either take you to the cleaners or you can hold your ground with a top real estate agent by your side. Everyone wants to make it to the finish line, but don’t leave money on the table along the way.
Article Image Source: (rawpixel/ Unsplash)