MY HOUSE IS UNDER CONTRACT – WHAT HAPPENS NOW?

CONGRATULATIONS!  You have a contract on your home.  You have a willing and able buyer and you have come to terms on the sale of the home.  What happens between now and closing?

Unless the buyer is purchasing “as is” (usually not the case) the buyer has a “DUE DILIGENCE PERIOD” – typically somewhere between 7 and 14 days.  During that time the buyer can terminate the contract for any reason or no reason at all.  The buyer can simply send a notice of termination and the deal is over – you are left with an unsold house and a search for the next buyer.

But do not worry – it does not often happen like that.  Instead, the buyer will have an INSPECTION – by a certified home inspector.  The inspector’s job is to find anything and everything that is wrong with the place, so don’t be surprised or offended.  Also, the standard inspection report is about 30 pages long – so don’t panic about that either.  It contains a lot of OTHER information in addition to any “problems” the inspector has found with your home.

After the inspection, the buyer will provide the inspection report to you and ask you to fix items that the inspector says need to be fixed.  They might ask for EVERYTHING, so be prepared for that – but more often the buyer will pick what is most important to THEM.  You can either agree to fix these items, or you can negotiate a dollar amount to compensate for the things you don’t want to fix.  You don’t have to agree to do ANYTHING, but it’s best to be as reasonable as you can – because again, during this period, the buyer is able to TERMINATE the contract for any reason or no reason at all. 

Once the due diligence period ends, the buyer cannot back out of the contract (except under a different, applicable contingency – financing or appraisal, for instance).  If they back out prior to closing and no other contingency gets them out of the contract, they lose their earnest money.  You, the Seller, can then claim that earnest money OR you can sue for damages.  But rest assured – a vast majority of the time buyers do NOT back out once the due diligence expires.

There may also be the aforementioned FINANCING and/or APPRAISAL contingency associated with the contract.  The financing contingency gives the buyer an OUT from the contract if they are unable to obtain financing.  The period can be anywhere from 7 days to 30 days.  As a seller, you have likely insisted on a prequalification letter from a lender – so you know the buyer at least HAS talked to a lender – and have negotiated as short a period as possible. 

The appraisal contingency is sometimes a longer contingency.  Sellers attempt to negotiate as short a period as possible, of course, but the problem is that many lenders are ordering multiple appraisals – sometimes even the day prior to closing.  So imagine the buyer’s dilemma.  They think that the property has appraised and there’s no problem – and then the lender orders ANOTHER appraisal and it comes in low.  As a seller, all we can do is keep in contact with the buyer’s agent and make sure that at least the first appraisal is ordered in a timely manner.  There’s no way to know in advance if the lender is going to order multiple appraisals.  It is not the norm, but it can and does happen.

Say the property does NOT appraise for the contract price – it appraises for less.  In that instance, if we are still within the appraisal contingency period, the buyer can (and will) ask the seller to sell the property for the lower price.  If the seller refuses, the buyer can walk from the contract.  But if the seller AGREES to sell for the lower price, the buyer is bound (unless another contingency applies).  One sticky issue here can be when the seller has agreed to pay for some of the buyer’s closing costs.  Say the contract is for $100,000, seller paying $5,000 of the buyer’s closing costs, and the appraisal comes in at $95,000.  Well, that’s what the buyer is REALLY paying, right?  Because they are effectively getting $5,000 back.  STILL, the buyer has the right to insist that the seller lower the purchase price AND keep the closing costs in.

 What happens NOW?!?!  All contingency periods are up.  We are waiting for closing.  Time to have all your utilities disconnected as of the day of closing, except for water.  It is common to leave water on for three days after closing.  The reason for this is that the buyer must present a closing statement to get water service – and, of course, they won’t have the statement until the day of closing.   In addition to scheduling the disconnection of utilities, do not forget to put in a change of address with the postal service – www.usps.gov – and notify your credit card companies, magazine subscriptions, and the like of your new address.

What can you leave in the place?  Best to leave nothing except what was agreed to in the contract (with the exception of any manuals for left appliances or the neighborhood directory).  If you want to leave anything else, or think the buyer might want you to, get your agent to get the okay from the buyer.  A typical issue here is that you cannot leave old paint cans unless the buyer says it is okay, for instance.  (Paint is not always easy to dispose of).  Then, hire someone to do one last, final, deep cleaning.  All that is required under the contract (unless there is a special stipulation) is that the home be left “broom clean” – floors and carpets swept, horizontal surfaces wiped down, ovens and fireplaces cleaned, etc.  But you don’t want to have an issue the day of closing over dirt; simpler to pay someone to do one last sweep.

Then, to closing it is!  Your job at that point is to bring all keys and remotes to the closing table.  Most of the documents will be signed by the buyer – you will have only a few.  You can give the buyer a forwarding address and/or email if you so choose – but that is by no means required.  You can always ask them to contact your agent if mail arrives for you after closing.  If you have gain from the transaction, you will be given a check at the closing table or you can have it wired directly to an account (this can be arranged ahead of time).

And you are done!!  CONGRATULATIONS!!!  You have sold your home in a difficult market!

MAKING THE OFFER – when should I ask to close?

Typically buyers placing an offer do so 1-2 months before they want to actually move.  So the “normal” time for a closing would be one to two months from the date the offer is placed.  In terms of WHEN during a month you should ask to close, if you close at the END of the month, you bring less money to closing – so most buyers want to close at the END of the month.  How it works is like this: unlike RENT, your mortgage payment is paid IN ARREARS.  If you close at the end of March, your first payment isn’t due until the first of MAY – you pay the first of May for the month of April (for rent, as you know, you pay at the first of the month for the month following – for example, rent is due April 1 for all of April).

Another consideration is this: when you own and occupy your home, you qualify for what is called “homestead exemption”.  It’s a partial exemption from property tax for your principal residence.  But in every metro county, you must own and occupy the home as of January 1^st in order to qualify for the homestead exemption.  Therefore, if you are looking for a home in the fall or winter, you want to be sure to close prior the end of the year in order to qualify for the exemption.  My husband and I closed on our home at the end of December for this very reason.

Other than that, there really is no “right” time to close.  It’s entirely up to you.  Most sellers are not going to want to accept a contract to close for too long after the contract date, though, because it ties up the property and makes it unavailable to other potential buyers.  You can always try, but know that the seller is probably going to counter with a closing date closer in time.  Their thinking is – what if the property is tied up for those months, and then you, Buyer, fail to close?  During the time they were under contract, they might have found another buyer for the property.

Be aware, also, that if you are making an offer on a short sale OR on a foreclosure, all bets are off, time-wise.  Short sales can take months and months to be approved (if they are approved at all), so even if you ask for a fast close date, it’s not likely to happen.  You will make an offer and then, usually, wait – and wait- and wait.  Foreclosures can sometimes close quickly, but at other times also take some time.  The seller must be sure that the foreclosure deed is recorded and in the chain of title and that other liens have been cleared before they can sell the property to you. (While many liens are extinguished by the foreclosure, some liens, such as tax liens, survive foreclosure and must be dealt with by the seller before they can give you clear title).

WHAT I LEARNED FROM BUYING A HOME – STUFF

So, I have sold hundreds of homes in my real estate career.  And each and every time I give my clients checklists of things to do.  But until I recently purchased another home (fifteen years after purchasing my first) I did not fully appreciate everything that must be done prior to move-in.  This first lesson can begin even before you find your dream home and get it under contract.

First, Goodwill is your friend.  Start putting aside items to take to Goodwill NOW.  A good rule of thumb is anything you have not used for two years – goes to Goodwill.  I am loathe to increase our landfill load, but I feel no qualms about giving to Goodwill, where I know the items will go to good use and the money to a great organization.  Start culling through your stuff now!  And while you are at it, start packing up off season clothes and other things you do not use on a regular basis.

While you are doing this – and this may be the most important piece of advice I give – mark each and every box with as much detail about the contents as you can muster.  Have thick masking tape you can write on handy for this purpose, particularly if some of the boxes you are using are from the grocery or liquor store and have no clear space for writing.  Label each box on the top and on two sides, so that no matter where or how you are storing things, a label can be visible.  For your box packing, you will want to have on hand a thick black marker, wide masking tape, scissors, a cutting knife, and clear box tape.

For boxes, many find the clear storage boxes from your local discount store to be a great help, particularly if you may be storing things even temporarily in a garage, carport or storage unit.  I love liquor boxes.  I do not drink.  But the boxes are substantial, and small – perfect for carting books, and the liquor store has a fresh and large supply every day.  Go to your local store (liquor or other) and ask when the best time to pick up boxes might be.  And of course you can always BUY boxes, but that always seems wasteful to me.

And be prepared for the emotional impact of this entire packing up process.  My husband keeps more “stuff” than I do.  But then, he has three children, now grown – but there is plenty of “stuff” that we want to keep for them, and for good reason.  So, you cannot rid yourself of everything that you do not use regularly when you are keeping things for others – and that’s just part of the process.

I must say, even with the many things we do not use and yet have kept for others, culling through what we have and ridding ourselves of so much “stuff” feels incredibly wonderful and freeing.  One of the best parts of moving is that feeling of freedom – of starting afresh.