5 Things To Expect When You’re Under Contract
After searching for the perfect home, you’ve finally found the one and have an accepted offer. What happens next? If this is your first go-around the process can seem like a bit of a mystery but the next 5 steps should give you a decent roadmap.
1 Your Option Period
We typically (read almost always) include an option period with your contract. During this period of usually 6-10 days you can back out of the contract for any reason and get your earnest money back. Get a bad feeling on your drive to work? You can back out, no questions asked. Your option fee is typically $10 a day, but this amount is negotiable, like many things in the TREC Promulgated contracts that Texas Realtors use.
2 Getting The Home Inspected
During the option period we highly recommend you get the home inspected. We have names of reputable inspection companies if you do not have someone in mind. Getting the home inspected is important for several reasons:
- Inspections dig deeper into the bones of the house, if certain items are a safety hazard or deficient the inspector will bring them to your attention
- Repairs, replacements, or monetary consideration for deficiencies can sometimes be negotiated (more on this in the next section)
- Experts in their respective fields (foundation, HVAC, plumbers, etc.) can be hired to provide deeper insight into the home
3 Negotiations During The Option Period
If your inspection(s) came back clean, then you can skip this section. However, it is very common for at least a few items to come back as deficient on an inspection report. If this is the case, the fact that you are still in your option period provides a major negotiating benefit. While the sellers aren’t required to make any concessions, they risk having you, the buyer, back out and having to put the property back on the market. There are a few options when repairs are needed:
- Having the seller pay for licensed/bonded contractors to conduct repairs
- Lowering the sales price in lieu of repairs
- Backing out of the contract and getting your earnest money back
If you have the funds to conduct the repairs yourself the second option can be incredibly beneficial as you will be able to select whoever you want to conduct the repairs. If the seller agrees to pay for the repairs themselves, they will typically insist that they get to select the contractors that do the work.
4 The Property Appraisal
Once you are out of your option period we will ask your lender to order the appraisal. It is important to note that the market analysis we provided prior to you submitting an offer, while a strong indicator of what the property may be worth, is not an appraisal developed by a licensed appraiser under the Uniform Standards of Professional Appraisal Practice. If you are taking out a loan to purchase the property then the mortgage lender will require a formal, non-biased, appraisal to be conducted. In the event that the home does not appraise a few things can happen. First, the TREC Third Party Financing addendum has a financing approval period that can be filled in when you are making an offer. If the home does not appraise and it is impossible to negotiate a lower sales price then financing typically will not be approved by the lender and you will likely be able to back out and get your earnest money back. The second option is to negotiate the sales price down to the appraised value. This must be agreed upon by both the buyers and sellers. The last option is to pay the difference between appraised value and the contracted sales price. It is important to note that any amount over the appraised value means extra money you will have to take to closing.
5 Closing and Funding
Once all documents, requirements, and waiting periods have been satisfied then the you will be able to close on the home. Closings usually occur during business hours at a Title Company, Monday-Friday and excluding holidays. Prior to closing the Title Company will tell you what all you need to take to closing. After all documents have been signed and reviewed, a funding request will be submitted to the lender (assuming a loan is involved). If both the buyer and seller closed early in the day, funding is likely to occur within a few hours. Sometimes funding does not occur until the next business day if closing occurred later in the day. Once funds have been transferred you will be given keys to the property. Enjoy your new home!