Once you have a property under contract, several things usually occur. The written contract will include deadlines for completing these steps. This helps to ensure an orderly progression and timely closing. As your agents, we will assist you in completing each of these steps.
Earnest Money and Escrow
Providing an earnest money check is one of the first steps to occur after getting a property under contract. The buyer provides earnest money both to evidence his or her intent to proceed in good faith and to protect the seller in the event the buyer impermissibly backs out of the contract. Earnest money can be refundable, non-refundable, or a combination of the two, and the amount of earnest money is negotiated as part of the purchase contract. Generally, the amount of earnest money is based on the details of a particular transaction.
Earnest money is placed in an escrow account until closing, at which time it is dispersed. Escrow accounts are held by third parties (i.e. title companies, real estate firms, etc.) and only dispersed based on the agreement of the parties. Typically, earnest money is paid to the seller at closing as part of the payment for the property.
The Closing Agent and Title Company
In middle Tennessee, your closing agent will most likely be affiliated with a title company, but it could also be an attorney. Your title company will serve several roles:
- Verifying Title – Your title company will research the recorded history of the property to ensure that the title is free and clear of encumbrances.
- Identifying Restrictions – There may be recorded easements and encroachments, which limit the rights to use your property. Your title company should identify such restrictions.
- Recording Your Purchase – Your title company will record your purchase and new ownership of the property with the appropriate legal authority.
- Earnest Money – Your title company may also hold your earnest money check until closing. Who holds the earnest money is determined on a case-by-case basis.
Your closing agent will also oversee the closing and ensure all of the necessary documentation has been received from the various sources. If you have ever been to a closing before, you know that there are a lot of documents to be signed. Your closing agent is responsible for collecting, organizing, and generating those documents.
How to Hold Title
You may wish to consult an attorney or tax advisor on the best way to hold title. Different methods of holding title have different legal, estate, and tax implications, especially when selling or upon death of the title holder.
Inspections
After your offer is accepted by the seller, you will have the opportunity to have a licensed property inspector inspect the property. We generally recommend inspections, as foregoing inspections is risky for most buyers. How long you have to conduct inspections is addressed in the purchase contract. You may elect to have different inspectors evaluate the property if you wish to obtain professional opinions from inspectors who specialize in specific fields (for instance, the roof, HVAC, structural, electrical, plumbing, etc.). For commercial property purchases, there are additional inspections that may be required (for instance, an environmental audit).
If you identify legitimate issues during inspections, you have several options regarding how to proceed. Most notably, you can request that the seller make repairs, negotiate a lower sales price in light of the cost of the repairs, or in some circumstances, terminate the contract.
Not all home inspectors are created equal. We will happily provide you with a list of the professionals with whom we have had good experiences.
Homeowners Associations
For residential purchases, you should also determine during your inspection period whether the property is subject to a homeowners association. If so, you should determine what annual or monthly fees are owed each year to the association, whether there are transfer fees charged by the association, and what benefits the association provides.
Appraisal and Lending
If your purchase contract is contingent upon an appraisal, it is imperative that you keep in close communication with your lender and respond timely to their requests. Failing to do so can delay your closing or worse.
Generally, lenders use appraisers to determine the value of the property. The amount the lending institution is willing to loan is closely tied to the property value, and the appraisals protect their investments. Appraisals also act to protect the buyers, as they can indicate if a buyer is paying more than a property is worth. Appraisers are specialists in determining the value of properties based on a combination of square footage measurements, building costs, recent sales of comparable properties, etc.
Property Insurance
If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. Even if you are not obtaining a loan, we always recommend that you obtain insurance for your property.
You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters, or fire-retardant roofing materials. Persons over 55 years of age or long-term customers may also be offered discounts.
- Periodically shop your insurance. Homeowner’s insurance increases over time. What is the best option one year may not be the same the next.