Escrow Inspections and Appraisals

CONGRATULATIONS, YOU HAVE AN AGREEMENT … NOW WHAT?

The Process, Step-by-Step

The Initial Agreement and Deposit

You considered all the terms in the offer, perhaps negotiated a few, and now have an agreement with a buyer to sell your home. Congratulations! Once you have accepted an offer, the buyer will provide an Earnest Money Deposit (EMD), which the buyer’s broker will generally hold in escrow until all of the conditions or contingencies in the agreement are fulfilled at closing. The EMD is usually between one and three percent of the contract amount. This deposit is proof that the buyer is serious about purchasing the home, since by accepting the offer, you as the seller are agreeing to take the property off the market. In general, the earnest money will go to you as compensation if the buyer backs out of the agreement (except if it’s the result of a contingency), and if you as the seller back out, the money will be returned to the buyer. At closing, the EMD is generally credited toward the buyer’s down payment and closing costs.

The escrow process officially begins when the buyer and seller have both signed the Purchase Agreement and the buyer has the earnest money on deposit with the buyer’s broker. Now it’s time for you and the buyer to work on removing your respective contingencies. With Vanderhoef Properties as your Realtor, we’ll be there to counsel you and negotiate with the buyer every step of the way.

Some important tips to keep in mind once the process begins:

• Keep written records of everything. Make sure all verbal agreements including counter-offers and addenda are converted into written agreements that are signed by both parties, otherwise they may not be enforceable. As your agent, we will assist you in documenting and completing each part of the agreement.
• Stick to the schedule. The buyer’s written offer and then the signed purchase agreement will give both you and the buyer a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures a smoother flow of negotiations so that each party involved is not in breach of their agreements. Vanderhoef Properties will explain each step, and we’ll always keep you informed of where we are in the process, so you will always be prepared for the next step.
• Don’t hesitate to ask questions. We know this process is complicated, don’t be afraid to ask questions. As your agent, that’s what we’re here for!

ESCROW, INSPECTIONS AND APPRAISALS

Inspections, Appraisals, and Contingencies

Now’s the time to resolve all of the contingencies in your agreement. If the purchase agreement included an inspection contingency, your buyer will have the property inspected by a licensed property inspector within the time frame that was agreed upon for the contingency. Some buyers will have several different inspectors inspect the property, if they wish to obtain professional opinions from inspectors who specialize in a specific area (such as the roof or HVAC). Timing is important for the inspection because once the contingency period has ended, the buyer will forfeit their earnest money deposit if a defect is discovered in the property and they want to get out of the deal due to the inspection.

If the agreement is conditional upon financing, then the lending institution will arrange for an appraisal of the property by a licensed appraiser to determine the value of the property the lender will rely on in considering the loan. This is done so that the lending institution can confirm their investment in your property is accurate. Appraisers determine the value of a property based on a combination of square footage measurements, building costs, recent sales of comparable properties, etc.

Depending on the outcome of the inspection and appraisal, one of two things may happen:

1. Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the closing; or
2. The buyer may request a renegotiation of the terms of contract (usually the price).

For example, if the appraiser determined that the property is not worth what the buyer has agreed to pay for it, that won’t necessarily mean that your deal falls through, but it will certainly complicate the deal. Generally, lenders care about the appraisal as it pertains to the loan-to-value ratio. The loan may still be approved if the buyer is able to increase their down payment to decrease the loan. If they aren’t able to increase their down payment, the buyer may try to convince you as the seller to lower the purchase price. You may consider that since you’ll have to put your house back on the market if the buyer isn’t able to get financing. In addition, sellers often recognize that if the appraisal was low once, the next appraisal for a different buyer may be low, too. If you’re still in the contingency period and the deal falls through because you’re not able to come to acceptable terms with the buyer after issues are raised during the inspection or appraisal, the buyer will likely be able to have the earnest money deposit returned.

How do you respond objectively and fairly to the buyer when a renegotiation is demanded, while acting in your own best interests? This is when a professional listing agent like Vanderhoef Properties can make a real difference in the outcome of the transaction. Having dealt with myriad property sales in the past, we will be there to counsel you as you navigate any issue that may arise.

The Closing Agent

A closing agent plays a key role in finalizing real estate and mortgage transactions. In Michigan, it’s common for a title company to be selected as a closing agent. If the buyer is getting financing for the purchase, there will probably be a “split closing,” which means there will be two title companies that work together and are involved in closing the transaction.

You as the seller or your agent will select the title company that will be used for the “sell side,” or documents pertaining to the transfer of title, such as the deed. After researching the complete recorded history of your property, your title company will certify that 1) your title is free and clear of encumbrances (for example, mortgages, leases, or restrictions, liens) by the date of closing; and 2) all new encumbrances (like the buyer’s mortgage) are properly included in the title after closing.

This title company will also ensure the accuracy of each monetary transaction involved in the sale, such as how much you as the seller will receive, how much will be paid in taxes, and other fees. They will also furnish the buyer with a title insurance policy, and they will handle the filing and recording of the deed and other paperwork, which updates the county records to show the new owner of the property.

The buyer or buyer’s agent selects the title company that will be used for the “buy side.” This title company works with the buyer’s lender to get the required documents, such as the closing disclosure that includes the loan rate and costs, and will furnish the lender with their own title policy, using the same methods as explained above. Additionally, they will provide the buyer with final numbers that include lender fees that the “sell side” title company does not have.

Shortly before closing day, your title company will furnish all parties involved with a settlement statement that summarizes and details the financial transactions involved in the sale, and the buyer’s title company will provide the buyer with the closing statement and loan-related documents.

When you receive a settlement package, it’s important to review it all carefully. Vanderhoef Properties can help make sure any questions you raise about the property or the closing package are properly answered.