Understanding The Real Estate Contract-To-Closing Process

The hunt is over. You found a house you are ready to invest in. You made an offer and negotiated its terms. But before you call the house your own, couple more things need to fall in place. The part of the home buying process that we are about to describe starts with what happens after your offer gets accepted by the seller. 

The average timeline of contract-to-closing process takes roughly six weeks. During this busy period, many steps must be worked on simultaneously. From home inspection to the final walk-through, the procedural formalities will be demanding on you and your time. The key to a successful contract-to-closing process is to meet all deadlines, be responsive to any requests from the seller and lender, and to trust the expertise of your agent. 

ESCROW DEPOSIT

After the seller accepts your offer and a contract is executed, putting 1-2% of the purchase price into an escrow account (which is held by a third neutral company) shows the seller that you are entering the transaction in good faith. If the closing is successful, the escrow deposit will go directly to the seller, and it will count toward the closing price. It also possible to lose the escrow deposit and this can happen if you cancel your contract after option period ends. 

TITLE SEARCH

The title search will examine all available public records and confirm that no one else can claim the property. Getting title insurance will protect you from financial loss if the initial title search is proven incorrect later. 

FINANCING

As soon as the contract is signed, work on loan application if applicable. During loan application, a lender will be asking about your income, assets, debt, and credit history. You should also lock in your interest rate to prevent it from changing for the worse. A financing period typically takes two-three weeks but shortening it to less than two weeks makes an offer stand out as more competitive. 

HOME INSPECTION

It is your responsibility as a buyer to schedule the inspection. It is also a good idea to attend the inspection as well as review the inspection report. We never recommend waiving the inspection because it may reveal serious and expensive problems with the house. As long as you have a home-inspection contingency in your contract, you can back out of the deal if the inspection reveals some red flags. Another option is to ask the seller to fix it or pay you to fix it. 

PEST INSPECTION 

In addition to the home inspection, which checks things like roofing and plumbing, you should not omit a pest inspection that checks for termites or carpenter ants. The presence of wood-destroying insects can be devastating and thus costly for properties. 

NEGOTIATE REPAIRS 

Submit written request to seller for repairs before option period ends. Based on the inspections’ findings, it may be a chance to renegotiate the price for the house in lieu of necessary repairs. 

APPRAISAL

The lender orders appraisal and based on its result, it may be another chance to renegotiate the price for the house if the appraisal comes in too low. An appraisal is there to protect you from overpaying as it determines the fair market value of the property. In a competitive market, buyers sometimes waive the appraisal value (so-called appraisal addendum) which shows commitment to purchasing the house regardless of the appraiser’s opinion of its value. 

HOMEOWNERS INSURANCE 

Before you close on the house, obtain homeowners insurance, and select your home warranty. Notify the title company about your selection. 

FINAL WALK-THROUGH

Give the property one last thorough look. Check that requested repairs were completed and no new issues have occurred. 

THE LAST FEW STEPS

• Schedule date and time for closing

• Set a date for moving and book a moving company 

• Address change where necessary (post office, bank, etc.)

• Activate or transfer utilities 

• Transfer funds for closing

• Hire an attorney to look over the paperwork or let the agent help you make sense of the legal jargon

• Negotiate closing costs

• Reduce or eliminate junk fees-administrative fees, ancillary fees, processing fees, etc. 

CLOSING DAY 

Sign the paperwork (closing disclosure, promissory note, etc.). Sign in a presence of a title and/or escrow officer. Tell lender to wire down payment funds. While cash purchases close in about two weeks, financed purchases take a little bit over a month. Safeguard your paperwork.

Pro tip: During the contract-to-closing process, do not make big purchases such as furniture for the new house until the sale is official. Many things can go wrong with the transaction and lead to a failed deal.