Budgeting for Pre-Closing Expenses, Contract Contingencies, Etc.
Budgeting for the first two weeks immediately following ratification is a crucial step for a buyer. By setting aside between $1,250 and $2,000, the purchaser will be prepared to cover their earnest money deposit, home inspection, appraisal, and any financing reservation fees.
From the time an offer is ratified until a purchaser sits down to sign their settlement papers, there are numerous steps that need to be completed. Based upon the original terms that were negotiated during the offer process, each phase is tied to its own contingency that must be removed before closing.
First is the property inspection, performed by a professional home inspector that is hired and paid by the buyer. Depending on the size of the dwelling, these inspections cost about $325-$375. The buyer, Erin and the inspector will meet at the property. Notes will be taken by the inspector, detailing items he feels should be corrected or reviewed by a contractor. He’ll be talking and sharing system operation and maintenance tips with the buyer as well. Once it is completed, a formal report will be emailed to both Erin and the buyer for review and discussion. Requested repairs will be written up on the appropriate paperwork. This sheet and a copy of the inspection report will be submitted to the listing agent to review with their seller. All parties will go back into negotiations regarding the repairs. Once an agreement is reached, all parties will sign off on any changes. Thus, the property inspection is formally removed.
The second contingency is financing. This important factor of a contract is multifaceted and is dependent upon several criteria. After the home inspection is completed, the buyer’s mortgage company will hire a professional appraisal. Approx. $400, this is buyer expense that is collected during formal loan application. During the appraisal, notes regarding features/conditions, pictures, and measurements will be taken by the appraiser. If there are certain aspects that the appraiser feels need to be corrected to comply with financing guidelines, they will note that as “conditions” or “subject to” items. With this information, he/she will compare it to other similar homes/properties that have recently sold/gone under contract or have come on the market. A value will be generated by the appraiser for the home. An official report will be compiled and submitted to the buyer’s mortgage company for approval. Upon approval, a copy of the appraisal will be released to Erin and her buyer. As long as there are no conditions and the value is at or above the negotiated sales price, no additional negotiations are required. If there are conditions and/or the property appraises for less, negotiations will begin based on terms set forth in the contract. Changes to price, repairs and/or concessions are reviewed. A re-inspect may be required to verify completed repairs.
Other aspects of the property condition play into the financing contingency. Typically, a seller must provide recent reports stating that there is no evidence of wood destroying fungi or an active wood destroying insect infestation. If signs are found, they must be repaired and/or treated at the seller’s expense, subject to the contractual cap. Likewise, properties that are serviced by an on-site well and/or septic system must have current reports attesting to their sanitary functionality. Any repairs or treatments needed are at the seller’s expense, subject to the contractual cap.
Ultimately, final approval of the mortgage and the items mentioned above are necessary for the financing approval to be removed.
In the middle of all these contingencies, it’s important that buyer remains committed to taking care of their responsibilities. Setting up their homeowner’s or hazard insurance policy is pivotal to a timely closing. Promptly providing additional paperwork and signatures to Erin, their mortgage company and their closing office is essential. Making sure they have the appropriate funds available for pre-closing and closing expenses is crutial. Transferring utilities to their name, putting in their notice to a current landlord and making moving preparations are just a few other examples. In short, everyone must do their part to keep the transaction moving along.
For homes that are located in neighborhood with home owner’s or condo associations, there is another contingency to be removed. Sellers must purchase and provide a current disclosure package. When this package is ready for delivery, Erin will assist in getting it to her buyers. In turn, the buyer has a specified amount of time under this contingency to review the documents. It is important that the new owner is aware of the bylaws, restrictions, and fees associated with living in the community.
Lastly, Erin and the buyer will meet at the home for a final walk through. Basically, it’s a time to make sure everything is in the same, (if not better) condition from when it was first viewed prior to an offer being submitted. Major systems, appliances, basic plumbing and electric items will be tested. Any negotiated repairs will be checked for completion. For any new or unaddressed home inspection or walk through items, arrangements or concessions will be made to remedy things. After a satisfactory walk through is completed, the buyer is one step closer to owning their new home!