step 4 Contract to close

You’ve agreed a deal, now what happens ?

The contract negotiations are complete and you’ve got a contract to close with an agreed price and close date. Here’s what needs to happen before you signed the documents to formally sell the house and timeline when each item has to happen. Most properties can close in 30 days, so I’ll use that in the examples below

Days 1 - 10

The contract is formally ratified. It is now a legally binding contract with both parties intending to close on the deal.

There are a number of deadlines in the contract and keeping track of due dates are critical. Many an inexperienced agent has cost their client thousands by not adhering to the due dates in contracts.

The contract ratification date is known as the ‘effective date’ in legal terms. For the purpose of the contract, business days are Monday through Friday and anything signed after 10am, the countdown for days begins the next day. So for example if the contract is ratified at 9am on Monday the 1st, then Monday the 1st is the effective date. If it is signed at 11am, then Tuesday 2nd is the effective date.

Attorney

In South Carolina, attorneys handle the closing, so if you haven’t already selected a closing attorney, you need to do so now.

The buyer and seller often use the same attorney, I completely disagree with this though. Lazy or rookie agents will say “oh it’s makes everything so much easier when the same attorney handles everything”.

If you both have the same attorney and there is a legal issue, that attorney (who you are paying) can’t give you advice since they also represent the buyer, so now you have to go get another attorney and bring them up to speed on the case.

You’re spending hundreds of thousands of dollars, do you want easy or do you want to be protected with solid legal representation ? Get a different attorney than the buyer who only represents your interests.

Your attorney will send you an engagement letter and form to fill out. It will ask for property address, your forwarding address to where you are moving, any outstanding mortgages on the property, who the HOA contact is, so have all that information ready and send back to the attorney immediately so they can start working on it.

Contingencies

Most contracts have the following four contingencies each of which must be satisfied before you close :

  1. Home Inspection

  2. Wood (termite) inspection

  3. Appraisal

  4. Finance

If you’ve read Step 3: You Get An Offer, I’ve already covered a lot of this in that page, but we’ll review it again here.

For each of these contingencies, if they are not met or satisfied for whatever reason, the contract can be voided and (usually) the buyer gets their earnest money back and both parties go their separate ways without any further legal issues. Now if the buyer just decides that they don’t want the house the day before closing (it happens…..), then it’s time to call your attorney.

Let’s look at the first two contingencies since they normally happen within the first 10 days of the contract

Home Inspection

The buyer will select an independent, licensed home inspector who will do 1-3 hour inspection of your house and publish a 50+ page report of their findings.

During the inspection, the inspector will test your electrical outlets, run your dishwasher, check the AC is working, crawl under the house to inspect the crawlspace, go up on the roof. They check everything and also find lots of things. It’s normal to find 20+ issues with a house, some minor, some bigger, some the seller has to fix, some they don’t.

Based on their findings, the buyer will likely send a “repair request” to the seller asking for certain items to be repaired before closing.

I’ve seen more stress, negotiations and arguments take place with repairs items than any other part of the contract including the sales price, seriously !! It constantly amazes me how much stress people will put on themselves over a $500 repair when they’ve happily dropped a price $5,000 to make the deal work during the initial contract negotiations.

My advice with repair requests is

1) Be reasonable, the buyer is paying a lot of money for the house, if something needs fixing, fix it. Take pride in the house you are selling.

2) Put it in perspective, don’t make personal and spend a week stressing over $500 repair on a $500,000 house. It’s 0.1% of the purchase price. You may read this and laugh, but I can tell you it happens ALL the time. When you are selling your house, put things in perspective of the big picture. $500 is a lot of money, I’m not for one second saying that it’s not, but if you’re selling a $500,000 house and spending 0.1% will save you 50% of the potential stress, DO IT !!!!

I personally recommend negotiating a repair credit with the buyer instead of doing the repairs i.e. we’ll give you X number of dollars off the price. Here is why :

If you have to do the repairs, now you have to get contractors out to your house to give an estimate, it could be multiple contractors for plumbing, electrical, roofing etc. It’s Charleston, they’re all super busy and don’t like doing small jobs like these repairs likely are, so getting them out to give an estimate is difficult enough and then you have to take time out of your day to be there when they do show up.

Then you have to chase down the contractors for their estimates .

Then you have to be there again for the day they come to do the work. They mess up your house etc, then you have to present the invoices to the buyer and then the day of closing, the buyer comes and does a walk through of your house and what if they decide that the repair isn’t up to their high standards. Now an hour before closing, there’s a big argument & further negotiation over a few hundred dollar repair. Just more stress you don’t need and it HAPPENS ALL THE TIME !!!!!!!

Make it easy on yourself and negotiate a credit in lieu of repairs. If it costs a little more, it costs a little more but you’ve saved yourself a ton of time and stress.

Even better and I HIGHLY recommend this, be proactive and have a pre-listing inspection done. Pay $400 and have an inspector inspect your house before you list it, that document can then be presented to any prospective buyers BEFORE they make an offer and you say “We’ve had an inspection done, these are the items found and we have priced the house based on this current condition”. Buyers will still be allowed to do their own inspection but any of the items already found by your inspector will not be repaired. Yeah, it costs you $400 (that’s probably tax deductible) but it saves soooo much time and stress. Trust me on this, I wish it was mandatory for all listings.

2. Wood infestation Report aka the termite Inspection

A separate inspector will come and do a wood infestation inspection. The report they issue is called a CL-100 which you’ll hear a lot. This inspector is looking for evidence of termites, active or non-active, damage from termites, the moisture content of the wood & crawl space.

Many mortgage companies will require to see the CL100 and it has to be clear, so if something is found, you’ll need to either get it repaired or have a licensed contract come and inspect it, maybe there’s some small damage but it’s still structurally sound, then they can write a letter stating that.

Note : The CL100 is only valid for 30 days, so the final Cl100 needs to be done within 30 days of closing. If you are not closing for more than that, I still recommend getting it done in the first 10 days from the effective date so you’ll know if there are issues and have time to repair it. The termite inspection is inexpensive, $100-150 and most will charge you a small amount to come out and reinspect within the 30 day window.

By the end of day ten, you should have received the inspection reports and hopefully negotiated a repair credit. That is the first two contingencies taken care of.

Financing

The buyer will have to apply for financing within the first few days of the contract effective date. It’s always a good idea to have your real estate agent establish contact with their lender as soon as the contract is ratified and call them weekly for updates. The last thing you want is any surprises, so if you’re calling once a week, you’ll be kept in the loop on what is happening.

Day 10-20

These are relatively quiet days, as long as you don’t have any repairs to do. You can focus on preparing for the move yourself and packing up.

One big thing that will happen during these days is the appraisal

Appraisal

The lender will send out an independent appraiser to value your property. If you live in a subdivision with lots of similar houses, appraisals can be relatively straight forward since the appraiser will have plenty of similar homes and sales to use in their calculation. If your home is more custom or remote then it’s get a bit trickier.

We can prepare a package for the appraiser that includes information that is helpful to them, including a list of upgrades you did, floorplan, plats, similar sales. Appraisers are human, the more information we can provide them, the better. They can be happy to use them…sometimes. Remember, I collect all this information before we list the house so give to prospective buyers, so we already have this information gathered.

The house can appraise or not appraise ! If it doesn’t appraise, then either you drop the price to the appraised value or the buyer agrees to the original price and they have to bring more money to the table at closing or we negotiate something in between. I discussed this at length in Step 3 : You Get An Offer

DAY 20-27

We’re starting to get close to the actual close date. At this stage 3 of the 4 contingencies should be met (the home inspection, termite inspection & the appraisal).

The only remaining contingency is the financing one and as discussed in Step 3, this contingency has no due date, it ends at closing, but we’ll keep in contact with the lender.

Your attorney will be in touch and may have some questions for you.

Your prep list should include :

  • Notify post office of your new address to forward mail

  • Call the utility companies and tell them to turn off service in your name on the closing date

  • Pack !

  • I think it’s a good and nice thing to write instructions on any alarms, devices, what are trash days etc for the new buyer.

If actual repairs were to be done, the buyer has the right to do a reinspection of these repairs so that will likely take place during these days. It’s a good idea to have the invoices ready for them to show proof of work and in case they need to call the contractor who did the work with any questions.

Day 28-Close

Your house

You should be finalizing your move. The buyer will do a walk through of your house, sometimes the day before closing, sometimes morning of the closing. They’ll be checking :

  • The house is left in good shape. You don’t have to professionally clean the house, although I think it’s a very respectable thing to do, but the house should be broom swept clean

  • ALL your belongings should be removed from the house. this includes the fridge and the attic. It should be as empty as a brand new house,

  • Any personal items that were to stay per the contract are still there

  • Any repairs negotiated are completed

You have to be 100% out of your house before the closing. Once the closing takes place, the house is not yours, you don’t own it and you are trespassing !!! Seems obvious and I shouldn’t have to point this out but it happens. Prepare for this and be out of the house at the very latest on the early morning of the closing date.

Attorney

You’ll be communicating with your attorney a lot in these days :

Before closing, you’ll receive your “ALTA” from your attorney, this is the settlement statement. Here is a sample. This shows the financials for your closing, including your costs and most importantly how much money you will get at closing. There’s no rule on when you will get this, but start asking about it 3 days before closing.

You also should talk to your attorney about how you want to receive your money. You can either get a check for it or have it wired to your account. If you want a check, this will only be available an hour or more after the closing and you may have to wait around for it, then go deposit it.

It can be more straightforward to get it wired. If you want this option, the attorney can advise what they need from you, but they usually ask you to bring a cancelled check to your closing.

Speaking of closing, you can attend the formal closing where the buyer is there too or you can talk to your attorney and sign your paperwork separately. I advise to sign separately because it’s a lot quicker.

The seller only has a few documents to sign and you can be in and out in ten minutes whereas, the buyer has all their loan documents to sign which can take an hour, then those documents have to be sent to the bank where they check it and meanwhile you are stuck in the attorney’s office making small talk with the buyer. I’ve even seen it take 2 hours on a busy day (last day of the month).

Also, the seller can usually sign their paperwork the day before closing.

All these reasons are why I highly recommend signing separately from the buyer.

For closing, be sure to bring photo ID with you.