My House is Under Contract...Now What?

For the purposes of this section you will need to understand what the Option and Earnest money checks are. The Option check is made payable to you in trade for a negotiated amount of days for the buyer to do all their due diligence: hire an inspector, call the insurance company, etc. The Earnest money check is made payable to the title company and is held by them until closing.

After the contract is signed. It is very important that all the utilities stay on up until the home has closed. Also make sure the water heater is on and at a temperature where the water can get hot for the buyers inspector to test. Soon as everyone signs the contract, you are in the Option Period (if one has been negotiated into the contract). Soon as you receive the Option check you should deposit or cash it soon as you can. The buyer will begin their due diligence including the hiring of an inspector who will go through the home in detail. The inspector will provide a report to the buyer typically anywhere from the same afternoon up until around the end of the following day. The buyer will then discuss the report with their Realtor and maybe a contractor or two. 

If they feel there are items that need to be addressed they could make a formal request for you to either have a professional make the repairs or give a negotiated dollar amount towards their closing costs so they can use that cash saved to hire a professional they choose after closing to complete the work. Do not confuse this with the appraisal process. Once the appraisal is done, the appraiser could still say they will not approve the loan amount unless an item is repaired. This could be wood rot, a leaky pipe, etc. Read your contract regarding lender required repairs for the details regarding this.

The buyer could also decide they do not want to move forward with the purchase and send a termination notice. In this case, you keep the money paid for the option period, but they receive their earnest money back, and your house goes back into active status for sale. If the buyer moves forward then both the option fee and earnest money are credit back to their side at closing. Once the Option Period has been completed then the lender will order the appraisal.

The appraisal. Once ordered it will take anywhere from 1-4 days typically to hear from the appraiser to schedule the appointment. He will provide his report to the lender in around 7-15 days (usually but can be longer). If the home appraises for at least the contract price then we move forward. If it does not, then the buyer will want you to reduce the home to the appraised amount, but this is a negotiable item. If an agreement is made then we move forward. If you cannot come to an agreement, the contract terminates and the buyer will receive their earnest money back. Then the house goes back into active status on the MLS.

A note regarding Financing failure. During the underwriting process, it’s possible that your buyer’s financing could fall through. This can be caused by many different things, such as new debt, missed credit card payments, an accident creating medical expenses and lost work, or a change in employment that makes the bank feel like there’s too much risk in financing the home. If this happens within the contract designated Finance Period, then the lender will provide notice of such and the buyer receives their Earnest money back and you keep the Option fee. If the Financing failure happens outside this designated time frame then you have the option of keeping both the Earnest and Option fees.

Within a few days to a week or so from signing the contract, the Title Company will send what is called a Title Commitment for your review. They may also send a preliminary settlement statement so you can get an idea of the fees you will incur for the sale. Check with your lender to see what you owe and compare it to the Title Commitment that will be coming. Do not just look at your summary page on your online account page. That balance may not reflect daily interest, penalties, fees, etc etc.

So, what is a Title Commitment? A Commitment for Title  (“Title Commitment”) provides you and your lender with the terms and conditions for how the final title policy 

will be issued. Title insurance offers protection for you and the lenders from certain defects or errors in the title to a property. There are four main parts (called “Schedules”) of the title commitment.

SCHEDULE A

Section 1 of Schedule A lists the types of policies that are going to be issued (Owner’s Title Policy and/or Lender’s Title Policy). It lists everyone to be on the buyers deed and shows the sales price. Section 2 of Schedule A shows the type of interest that the buyer is going to acquire in the property, which in most sales should always be “Fee Simple.”

Section 3 shows the legal owner/s of the property are (you) after a search in the real property records. Section 3 is important to review to make sure that the names listed here match the seller on the contract. If there are additional people listed here, that did not sign the contract, then you likely do not have a valid binding contract. There are many reasons why this may not match and they typically include issues like: a death or divorce in the chain of title, bankruptcy or marriages since acquisition of the property. In all cases, something shown in this section that does not match the contract means that the listing agent and sellers need to work closely with their escrow team to help work through any issues. The agents work on getting additional signatures on the contract as quickly as possible or it could be as easy as a single page amendment which both parties sign.

Section 4 of Schedule A shows the legal description. When dealing with real property it is the legal description that controls the transaction, not the physical property address. Legal documents that are recorded at closing should always describe the property by the description found in Section 4. Review this section to be sure what is shown here is what you mean to transfer at closing.

SCHEDULE B

Schedule is directed to the buyer and lender that will receive a title policy. This schedule includes the EXCEPTIONS to the policy that will be issued. An exception is something that will not be covered in the title policy. Schedule B includes both standard exceptions and property specific exceptions. A “standard exception” is one that includes promulgated language from the Texas Department of Insurance. These are exceptions to coverage that are to be found in every Owner’s or Lender’s title policy that is issued. These exceptions do not change. A specific exception is one that affects the property to be insured and is not standard in all Texas title policies. Specific exceptions can include things like: restrictions, easements, mineral severances, and setback requirements. It tells the buyer about possible limitations in use or encumbrances on the property.

SCHEDULE C

The items listed here must be addressed prior to or at closing in order for a title company to fund and issue its policies. We call them REQUIREMENTS. This section lists items such as: mortgage liens, tax liens, abstracts of judgment, and assessment liens. Schedule C also lists any requirements that must be satisfied to get to closing. This schedule is important to both buyers and sellers as it itemizes what has to be satisfied before closing can occur. Pay special attention to this schedule. It is the checklist of tasks to cure in order to close on time. Many “simple” matters are easily resolved by tasks that the closing team handles through the closing process. Most commonly these are matters like ordering a payoff statement on an existing mortgage lien or tracking down certified copies of documents. The more complex matters will require participation by the seller and listing agent to be able to get to closing on time. 

SCHEDULE D

This schedule is primarily for disclosure purposes. It outlines the parties who have a share in any part of the title premiums, including underwriters and title agents.

Your move. You should already have a gameplan in place by now. It may be time to implement it. Reach out to us to discuss this further. Timing is crucial. If you’re buying and selling simultaneously, you might consider temporary housing so you don’t have to worry when children and pets are involved. There are hotels and motels that have weekly stay pricing. This may be a good option. Take a look at our page What To Do The Week of Closing for details on a few easily forgotten points to consider. This information will apply for this section and the two sections below depending on your particular sale agreement.

Fulfilling closing obligations. These are the repairs and any other negotiated items agreed to in the initial contract and/or during the Option Period.. Sometimes the buyer will request the repairs be completed at least two weeks prior to closing. This is so they may have the inspector go back out to confirm and evaluate the repairs. It is your responsibility to obtain permits where required by your municipality. Make sure to get receipts for everything the buyer will need a copy.

Review expected closing costs. Selling a house can be expensive, so review your estimated closing costs ahead of closing day to prepare for the charges you’ll see. Closing costs for sellers can be as high as 8 to 10 percent of the sale price of the home, and that amount is made up of our broker’s commission which also covers the brokers commission for the buyers side, and prorated taxes and fees. But, assuming you have some equity in the home you’re selling, these costs will come directly out of the profits you’ll be receiving upon closing. Once the house has closed your current mortgage lender may also have an escrow refund due to you.

Closing day. One of the very last steps is showing up for your closing appointment, where you’ll sign all the legal documents related to the sale of your property.  The keys are handed over to the buyer once everyone signs their closing documents, the lender has sent the funds to the Title Company, AND the Title Company has written the payoff checks to all necessary (like prior mortgagor, contractors, lien holders, and your net proceeds).

As always, if there is anything you have questions on, dont hesitate to contact us!