So, you’ve got a signed contract, what happens next?
Step 1: Earnest Money Deposit (EMD)
The contract will specify how much, who will hold the EMD, and how soon after the contract is signed by both parties that the EMD is needed. The EMD is normally held by a title company and is usually required within 3 to 5 days of the effective date of the contract (the last date that either the buyer or seller signed). The EMD may have been turned in to the realtor during the negotiation process who will get it to the title company or it may need to be sent or wired directly by the buyer.
Step 2: The General Home Inspection
The standard and customary real estate sales contract in this area states that the buyer has the opportunity to obtain a home inspection normally within 15 days of the effective date of the contract (the last date that either the buyer or seller signed). It is always a good idea to have the home inspected and it is preferred to have the buyer pay for this type of inspection so that the inspector is working for them and not the seller. Utilities need to be on in the home at the time of inspection.
The buyer reviews the home inspection results and in writing, notifies the seller of the repairs that are required. The seller then obtains estimates of repairs and a determination is needed if the repairs are within the contracted repair limits. This step can require more negotiations between the buyer and seller and/or an addendum to the original contract.
Step 3: Title Work
Title refers to the legal ownership of the home. The seller must provide a title that is free and clear of any claims against the home, including liens or encumbrances. Paying for the title work is covered within the contract and can be paid by either party. The title company is notified by the realtor’s office to begin this very important step. Problems with the title can lead to extreme delays in closing the contract.
Step 4: Appraisal/Loan Processing
The appraiser is hired by the lender (paid for by the buyer) to ensure the home is worth the money being loaned. Depending on the type of loan (especially government backed loans like VA, FHA or rural housing) or just the personality of the appraiser, the condition of the home may be examined. THIS DOES NOT REPLACE A HOME INSPECTION since it is not uncommon for appraisers to overlook issues that would be caught by a home inspection. At the same time the bank will process the loan application. A prospective buyer should not make any major purchases until the contract closes.
Step 5: Wood Destroying Organism (WDO/Termite) Inspection
This normally cannot be done more than 30 days before closing and is usually ordered and paid for by the buyer. A clear WDO report must be issued before closing if the buyer is financing the loan. This is another item that may lead to further negotiations if the repair limit is exceeded.
Step 6: Septic Inspection and Survey
Prior to May 2012, if the home was not on public or city sewer, a septic inspection was required. That is no longer a state requirement, however, if it’s still desired it can be completed by the Santa Rosa or Escambia County Health Departments or any private contractor. If the septic system was installed prior to 1985, there should be a pump-out letter issued. Pump-outs are normally included with a private contractor’s inspection, but the buyer should be sure to ask the question.
A survey may not be required if the seller has the original survey, no changes have taken place on the property (no new buildings or other changes), and is acceptable to the lender and title company. The septic inspection and survey are included in the contract negotiations are normally ordered and paid by the buyer. Neither inspector has to enter the house.
Step 7: Will a home warranty plan be purchased?
This is an item negotiated in the contract and can be paid for by either party. These are selected and ordered just a few days before closing.
Step 8: Final Walk-through
The buyers make one final visit normally the day before or day of closing. This is not another inspection period, it is not a time to identify more repairs or upgrades. It is time for the buyer to make sure the home has been maintained in the same condition as it was when the offer was first written.
Step 9: Review the Settlement Statement (HUD)
This statement shows how the funds are being disbursed based on the expenses and any credits that were negotiated. It is normally available 1 to 2 days prior to closing. Closing cannot happen until the final HUD has been issued. If there are any repairs that need to be completed, a clear WDO report hasn’t been issued, there is any problem with financing, or any other of a multitude of problems can cause preparation of the final HUD to be delayed. The buyer’s and seller’s realtors will check the HUD for accuracy and then he or she will advise how much money will be changing hands at the closing table and how that money should be prepared (cashier’s check, wire transfer…). This process usually takes a day or two and if there is any error in the HUD, more time may be required.
Step 10: Closing
This is normally conducted at a Title Company office. Buyer and seller do not have to sign at the same time but it should be on the same day. If you’re the seller, you’ll be expected to move out completely before the property changes hands at closing. Make sure the closing date doesn’t fall before you’re able to move into your next residence. Don’t cut the dates too close because many closings occur one or two business days later than the contract states due to unforeseen delays. The buyer should make arrangements to have all the utilities transferred to his/her name effective the date of closing.