We have an accepted offer that everybody has signed. What comes next?

 Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 11

This is the eleventh post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – OK, we have an accepted offer that everybody has signed. What comes next?

Congratulations! Now your work begins. First make sure that you have thoroughly read through the contract and made a list of the various deadlines that are specified in it. There are usually two or three that have to happen within the first 7-10 days – The home inspection, applying for the mortgage and determining whether flood insurance is required are typical tasks that must be completed in that time frame.  

One of the most important and critical things that you need to do is to hire a good home inspector and

get that inspection done. Your Realtor® may be able to give you a list of 4-5 home inspectors that he/she may have worked with in the past. IF not, just Google home inspectors for your area. Look for an inspector who belongs to one of the national associations of home inspectors. While that’s not a guarantee that he/she is a really good home inspector, it does means that they have been qualified to some extent for their home inspection knowledge and skills.

Find out what dates and times the home inspector has available and coordinate that with your schedule. Once you have settled upon a date and time, have your Realtor make the home inspection appointment. T Your Realtor is expected to be there too, so it has to fit into their schedule, too. While it is not required that you be there during the home inspection it is strongly advised that you are. You will find out a tremendous amount about the place that you ae about to start living in, such as how to change the furnace filter, where the water shut off is, how old the major mechanicals are – furnace and water heater – and perhaps how soon it appears that they will need to be replaced. You will also be told about and shown (where it’s safe for you to see it) any defects or issues that the home inspector finds that will need to be repaired. You aren’t expected to go up on the roof or up in the attic space with the inspector, but you could if you are able.

A good home inspector will be taking pictures as he/she goes to help document what they have found. If they find health hazards, like gas leaks, they may also tag those things (usually with red tags) in the areas of the defect, to help identify for the home owner where a repair needs to be made. Some home inspectors will cycle the major appliances to make sure that they all work, but some don’t do that. Ask before you hire the inspector if he will do that. Testing the appliances, even if the Sellers’ Disclosure says that they work, will reveals those burners on the stove that no longer work or the washing machine that leaks every time that it is used. That can prevent the surprise of having to make a major appliance investment right after moving in.

FAQ Supplemental – My home inspection report has lots of things that the inspector found that need attention. How do I handle that?

First off, don’t panic! All homes (even new builds) will have some things that need to be repaired or replaced and some things that the inspector may indicate will need attention soon. Go through the report thoroughly and make a list of the big things (major things) that are called out in the report. Decide which of those big things you can’t live with and need to have repaired or replaced before you would move in. Talk to your Realtor about conveying your concerns and demands to the Seller in the form of a letter or email that is labeled Unsatisfactory results from Home Inspection. You may ask the

Seller to repair or replace those items or to give you a Sellers’ Concession of some amount to cover you doing the repairs after closing. If it is a big job, like a new carpeting or a new roof; you may suggest that you get three estimates for the job and use the middle estimate to set the concession price.

If you make demands that the seller must have the repair work done prior to closing, be sure to include in your demands that the seller produce paid receipts at closing for all work and that all work be performed by qualified and licensed (if required) professionals and that any needed permits be pulled and the work inspected by the local building authority.  Remember this is your request, based upon your inspector’s opinion and the Seller may disagree, so this is a negotiated settlement of those issues. If you can’t agree with the Seller on a resolution to the issues, you may have to walk away from this deal.

What else will be happening?

The mortgage application process may involve supplying more documentation that you have previously given your mortgage person. The underwriter will want to see a couple of years’ worth of income tax returns and probably some documentation from your employer. You may have to fill out a detailed financial statement of your income and expenses, if you hadn’t already done that. Bank statements and statements from any other place where you have money will also be required. This can be an especially difficult thing for self-employed people who may not have good records of where their money came from and went over the last couple of years.  You have just moved from the mortgage reps view of “you look like a good person and seem to be OK financially” to the underwriters need to see and understand every little detail of your financial life. Don’t get offended by the requests that you get, just supply the requested documents.

You may also need to at least check the FEMA Flood Plain maps to see if the property is in a designated flood plain. Go there and put in the address of the property. Why is that important? Well, it will tell you whether you need to get flood insurance or not. Your mortgage company will probably tell you that, too; but you should check, just to make sure. You will need to arrange home owners’ insurance anyway and give proof of insurance to your mortgage person. You homeowners’ policy will protect you against internally caused water damage, like your water heater leaking or a broken pipe, but it does not cover water coming inform outside, i.e. flooding. Your homeowners’ policy doesn’t cover you for things like sewer backups either, so hopefully your sewer connection has a check valve in line to prevent backups.

We’ll talk more about other things that can happen while you wait for closing and things you will need to do as you get closer to the closing date.

My offer was accepted, What do I do now?

The 6^th in a series of 10 posts answering frequently asked questions from buyers.

Answer - Congratulations! The acceptance of your offer starts a process that normally takes between 30-60 days, depending almost entirely upon the ability of your mortgage company to finalize your new mortgage. Your Realtor can play a crucial role on making this process go smoothly and as fast as possible. Here are the things that need to happen (or not happen):

1. You will need to inform your mortgage company and get them started on actually underwriting

a mortgage for you. They will need to see a copy of the complete Purchase Agreement package. They will enter the file into underwriting and schedule an appraisal of the property. This is where the underwriter will do a deep dive into your financial life, so hopefully everything is in order and you have honestly disclosed everything to your mortgage rep.

2. You will need to schedule any inspections that you have requested in the Purchase Agreement - Termite, Radon, Home Inspection, Well & Septic, etc. Normally those are expected to be completed within 5 - 7 days of the acceptance date of the contract. You will need to make sure that the seller is scheduling any inspections and reports that you required of him/her – perhaps you asked him to do the Well and Septic inspection and he agreed. Your Realtor should be able to provide you with a list of companies that do the home inspections and probably has a list of people for the other inspections as well. You are responsible for contracting for and paying for the wood destroying pests inspection, the test for Radon and home inspections, normally at the time of the inspection. The seller is typically responsible for paying for the well and septic inspection and for providing a report of the results to you, but he may have kicked that back to you during the negotiations.

3. A Radon test takes at least 48 hours. A device is placed in the house that records Radon levels every hour on the hour. The federal government has set a standard for acceptable Radon levels in houses, especially in finished basements where the family may spend significant time. If the detection device detects unacceptable levels of Radon, you may ask the seller to fix the problem by informing him/her in writing within 3 days of the report and requesting remediation. Radon remediation systems cast about $800-1000. so sellers may be reluctant to install them. The seller normally has 5 days to decide whether to meet your request or refuse. If he/she refuses to deal with the Radon issue, you have the right to declare your offer to be null and void and walk away from the deal and get your earnest money back. Visit this US Gov EPA site for more on Radon. Radon is a serious matter but one of the easiest to fix and once a remediation system is in place you have nothing to worry about.

4. A similar scenario plays out with the Home Inspection. If the inspector finds a significant problem with the house or any major system, you must inform the seller about the problem in writing within 2-3 days of the inspection and ask for it to be repaired. The seller again has the right to say no, which then give you the right to cancel the deal or to go ahead with closing. Normally your Realtor will be at the inspection with you and may assist you with scheduling it

with the seller through the listing agent. You should plan on spending 3-4 hours on this inspection and plan to take lots of notes. This is where you will really learn all about your new house.

A good home inspector will show you where everything is, explain how all of the major systems work, explain how to re-light any pilot lights, how to change any filters and provide tons of other useful information for the new home owner. He will also record all of the model and serial numbers for the major systems, so that you have that information if you have to call for repairs. The cost of the home inspection varies by the size of the house, but figure somewhere in the $300-500 range and be ready to write the check when the inspection is done and the inspector turns over the report to you. You should also do a home inspection on new build homes, even though the builder may not want you to. Here’s an article that explains why.

If your inspector finds mold in the house, don't panic. Mold is a serious things but is another thing that can be fixed. All houses have some mold in them, mostly just simple mildew, but some have long standing issues that have resulted in the dreaded black mold. Even that have be remediated. So, don't panic. Read this post that I did earlier in the year about mold.

5. You will be receiving a “Title Commit” from the title company which will show any and all

recordings that they can find that might affect the property, such as easements, encroachments, unpaid taxes and anything else. Make sure that you read through that document and understand what all of those things are, if there is anything listed. If you object to anything that you see, you have the right to ask the seller to clear up whatever the issue is, so that he can pass a “clear title” to you. If the title cannot be cleared to your satisfaction you have the right to cancel the deal. In many cases these days there are two title companies involved - one for the seller and one for the buyer. Make sure that you see both title commits and that they agree with each other.

6. You will need to make sure that you have ready access to the amount of money that you indicated that you would be placing down on the house. Normally a cashier’s check or certified check for that amount will be required at closing. If your money is tied up in investments, you'll need to get the ball rolling to gain access to it for the closing. If funds are to be "wired in", you'll need to get wiring instructions to your financial institution. The title company handling the closing for you will need those instructions which your financial institution should send in an email.

7. You'll need to purchase an insurance policy for the house and provide proof of paid-up insurance to the title companies ahead of closing or at closing. They usually require a paid-up one year policy.

8. You will need to plan for the move-in and possibly hire movers. Your Realtor may be able to make recommendations for movers. I usually don't recommend that you have your stuff on a truck that is circling the block while the closing is taking place. too much can still go wrong. Until you have the keys in hand, the house isn't yours, so don't schedule the move-in until after closing.

9. The closing date is an agreed upon date between you and the sellers but is normally driven almost entirely by the length of time that it takes for your mortgage company to set up your mortgage. The Purchase Agreement may state that the closing will be held within "X" days of the completion of all of the necessary paperwork and/or give a "not to exceed" date that is normally 30-60 days from the acceptance date. If there is any need to move that date out further, an Amendment must be signed by both the Buyer(s) and Seller(s).

If the seller is staying on in the house after the closing, you will be due rent from him. The rate is normally determined by calculating the daily cost to you to own the house – mortgage (principal and interest), taxes, and insurance. That figure may have to be added to the Purchase Agreement in an Amendment, if you didn't know it at the time of the offer. The title company will retain in escrow an amount equal to the daily rate times the number of days that the seller has stated that he wants to stay, plus any damage deposit that you and the seller have agreed upon. That money will be paid to you when the seller leaves and the two of you have resolved any damage claim. Any balance will be rebated to the seller.

10. Once closing is set, you will have one final opportunity to inspect the property before closing. This is called the "walk-through inspection" and is normally scheduled for 24 to 48 hours prior to closing. This inspection allows you to see that no significant changes or damage has taken place to the property and that it is still as it was when you made the offer. If there is significant change, you may delay the closing to allow the seller to repair any damage or make right any changes. This might occur if the sellers decided, after you made your offer and they accepted it, to remove a light fixture or tear out an above ground pool.      

The Offer that you made probably specifies that all of the light fixtures, window treatments and other attached or "permanent" features and fixtures of the house will stay, unless specifically excluded in the Purchase Agreement. Some sellers don't understand that and some just try to get around it. The final walk-through inspection is where you would catch that and request that the issue be resolved prior to closing. Don’t wait until after the closing to ask, “What happened to the chandelier in the dining room?” It will be too late then.

A day or two before closing it is a good idea to call the local utilities companies and arrange to get the utilities switched into your name. In Michigan the utility companies use the phrase “transitioning in” for the buyer and “transitioning out” for the seller. Sellers should be advised not to set the transition out date until after the closing. Sometimes if the buyer forget and the seller has set a date to transition out, the utility with shut of the service because they have no one to transition the bill to.

Once you get past the flurry of activities involving inspections and things, it may seem like time just drags along while you wait for the closing. Don't do anything that could jeopardize the closing during that waiting period; especially don't go out and start buying things for the new house - furniture or appliances. The underwriter who approved your mortgage did so based upon a lot of factors, one of which is your debt to income ratio - the amount or percentage of your monthly income that is committed to pay for credit balances. You can significantly throw that ratio off if you go out and buy several new big-ticket items for the house. There'll be time for that after the closing.