The Closing Agent.
Once you and a buyer have signed a contract, your respective attorneys will have an agreed-to period of time, usually 3-5 business days, to review it and either approve it or withhold approval. If attorney approval is withheld, the original contract ends. If you and your buyer wish to continue with the sale and purchase, the you can negotiate new terms which are satisfactory to all parties, including the attorneys. The escrow deposit is held by your real estate broker or the attorney until closing. Once all contingencies have been satisfactorily met, the buyer’s attorney will perform a Title Search of the property. After researching the complete recorded history of your property, they will certify that 1) your title is free and clear of encumbrances (eg. mortgages, leases, or restrictions, liens) by the date of closing; and 2) all new encumbrances are duly included in the title.
A contingency is a condition that must be met before a contract becomes legally binding. For instance, a buyer will usually include a contingency stating that their contract is binding only when there is a satisfactory home inspection report from a qualified inspector and that they can obtain satisfactory financing to complete the purchase.
Before completing his or her purchase of your property, the buyer goes over every aspect of the property, as provided for by purchase agreements and any applicable addendums. These include:
• Reviewing all pertinent documents, such as preliminary title reports and disclosure documents;
• Inspecting the property. The buyer has the right to determine the condition of your property by subjecting it to a wide range of inspections, such as roof, termite/pest, chimney/fireplace, property boundary survey, well, septic, pool/spa, arborist, mold, lead based paint, HVAC, etc.; and
• Obtaining financing commitment and insurance.
Most buyers will have the property inspected by a licensed property inspector within the timeframe that was agreed upon in the effective contract to purchase. 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 (eg. roof, HVAC, structure). If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution via third party. This is done so that the lending institution can confirm their investment in your property is accurate. A buyer of a commercial property may also have a complete environmental audit performed and/or soil test, if required by the lending institution.
Depending on the outcome of these inspections, one of three things may happen:
1. Either each milestone is successfully met and the contingencies will be removed, bringing you one step closer to the closing;
2. The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract (usually the price or a credit); or
3. A satisfactory renegotiation does not occur, the buyer withdraws the offer, the contract is rendered null and void, the deposit monies are returned to the buyer and there are no further obligations between the parties to the contract.
Loan Approval and Appraisal.
Most buyers submit proof of funding (or proof of funds if the offer is cash) with a written offer. A lender’s pre-approval letter, approval letter or written loan commitment is a better guarantee of loan approval than a pre-qualification letter or no documentation from a lending institute. Once a contract has been secured and inspections have been satisfactorily met, an appraiser from the lender’s company will review your property and verify that the sales price is appropriate. If the buyer is paying cash, there is no mortgage contingency in the contract. Often, there will be a contingency that the buyer will have an appraisal performed, at the buyer’s expense, to verify that their purchase price is appropriate to the property value.