After the Contract
Congratulations on your signed contract! Below you will find some helpful information regarding next steps in the process for both Buyers and Sellers! We would be happy to discuss any of your outstanding questions about the process via phone or email.
Sellers:
You're heavy lifting is mostly done, but we do have a few things to get done prior to closing day:
- Inspections
- Survey
- HOA / Condo Docs
- Utilities
- Final Walk-Through
- Closing!
Buyers:
You found a home! We are very excited for you, but also want you to know that the race has just started, and we have a lot to do before closing day. Below is a summary of steps in the process to get you to closing day, in order, as well as a detailed explanation of each step and items needed to complete each step.
- Option Money
- Earnest Money
- Inspections
- Survey
- Insurance
- Title Policy
- Loan
- Utilities
- Your Red Pear Realty Rebate
- Final Walk-Through
- Closing!
- Post-Closing
Option Money is the fee you pay to the Seller to have the exclusive right to purchase their property during the agreed upon Option Period, as well as the right to back out of the contract for any reason during the Option Period. If you end up purchasing the property, the Option Money fee is credited to you for your final cash to close amount. Alternatively, if you end up terminating the contract, the Seller will keep the Option Money fee. According to Texas law and the contract, you have 3 business days to provide the Option Money amount to the Title Company (either via a check or wire transfer) once the contract is signed, or you are in default of the contract If in default, you forfeit both the Option Money fee and the Earnest Money fee, and the Seller can place the property back on the market as they please. The Option Period starts on the day the contract is executed (the Seller's Agent will mark the execution date on Page 9 of the One to Four Family Contract), and goes through 5pm of the final date of the Option Period (the number of days of the Option Period is shown on Page 2, Paragraph 5(A)(4) of the One to Four Family Contract).
2. Earnest Money
Earnest Money is the amount of money that you pay to the Seller, held in escrow by the Title Company, that demonstrates that you are a serious, qualified buyer with real money at stake when making your offer. Typically in Texas, Earnest Money amounts to a minimum of 1% of the purchase price of the home, although in Seller's markets, you may need to offer something higher to make your offer competitive. If you end up purchasing the property, the Earnest Money fee is credited to you for your final cash to close amount. If you terminate the contract for any reason during the Option Period, you are entitled to receive your Earnest Money back in full. If you terminate the contract outside of the reasons and timeframes allowed by the contract agreement (such as the option period, appraisal contingency, or Third Party Financing Addendum), then the Seller is entitled to keep the Earnest Money. Earnest Money is paid directly to the Title Company (their address is on the first page of the contract) in the form of wire transfer or personal check (made out to the Title Company). According to Texas law and the contract, you have 3 business days to provide the Earnest Money fee once the contract is signed, or you are in default of the contract. if in default, you forfeit both the Option Money fee and the Earnest Money fee, and the Seller can place the property back on the market as they please.
Follow up to 1 & 2: Option and Earnest Money
You have two options to deliver the Option Money and Earnest Money to title: (1) You can wire the funds, or (2) You can mail a check. The total of the two can be sent in one wire or via one check. Wiring instructions will be provided by the Title Company via email. Please feel free to email your escrow officer at the title company (you should have been included in a group email from us to them) or call them, and request whichever method you prefer to deliver funds. It is always good to verbally verify wiring instructions to reduce the risk of wire fraud. And finally, if you ask title to mail the check, they can usually email you a PDF mailer slip from FedEx or UPS to overnight your check to them.
3. Inspections
The purpose of inspections is to make sure that you are getting the quality of home that a normal buyer would expect. As soon as we know that the contract will be signed, we should set up inspections that will occur as quickly as possible because your leverage (to terminate the contract) with the Seller greatly decreases once the Option Period expires. Most buyers start with a general inspection and termite inspection, and obtain specialized follow up inspections and cost estimates for individual items or systems as needed (for example, an Electrician for deficient electrical items or Plumber for deficient plumbing items). Depending on the size and characteristics of the home, time of the year (busy or off season?), and location, a general inspection can cost anywhere from $350 to $1,500 and a termite inspection is typically $100 to $150. When you attend the inspection, please ask the Inspector to explain his findings to you, and ask him which issues he would be concerned about if he were buying the home. You should also ask him to show you where the electrical breaker box and water shutoff valve is located. General Inspectors have legal and ethical requirements to disclose certain deficiencies, and only you can decide if you are comfortable moving forward and purchasing a home given inspection findings. No home will ever be perfect, even a brand new one, but you have every right to expect your home to be safe for occupancy and components to function as intended, unless the deficiency was previously identified by the Seller in the Disclosures before you signed the contract, or the item was plainly obvious when you saw the home. You have three options for every deficiency identified: (1) Accept the deficiency and move forward regardless; (2) Ask the Seller to remedy the deficiency at their own cost prior to closing; (3) Ask the Seller to credit you an amount of money or reduce the purchase price such that you can remedy the deficiency after closing at your cost and risk. Depending on each specific deficient item, any of the above approaches might be right for you. Once you decide the items identified in the inspection that you want to pursue with the Seller, we will prepare an amendment to the contract that outlines your request. The Seller may agree, flat out refuse, or try and negotiate with you for these requests.
4. Survey
A property Survey confirms a property's boundary lines and legal description. It also determines easements or restrictions that are part of the property. This is very important because it tells you what you can and cannot do with the property. For example, you might find that the pool or garage apartment that you planned to build in the back yard would actually encroach on the property setback lines or utility easements, and could be illegal or removed by the easement holder (often a utility company or local government) if they wish to do so. The Survey is also used by the Title Company to produce the Title Insurance Policy. Typically, in Texas, the Survey is the responsibility of the Buyer to obtain, but if a Seller provides a copy that the Title Company and Lender will accept, then you won't have to buy another one and you just saved some good money! Surveys for typical residential properties in major markets can cost anywhere from $400 to $1,000, and surveys for rural land or rural properties can cost thousands of dollars and take weeks to complete depending on the size of the property.
5. Insurance
If you're obtaining a loan for your home, the lender will require that you obtain property insurance. If you're paying all cash, we still recommend that you obtain an insurance policy. We also recommend that all of our clients request insurance quotes from multiple insurance agents to see who can get you the best pricing---(1) because its doesn't cost you anything but your time, and (2) because it doesn't ding your credit. We also recommend that all of our clients obtain flood insurance regardless of if they are in the flood plain (and its required) or not.
Several of us personally use Liere Insurance for our houses. In the 10+ years that we've been with them, their customer service has been awesome, and their prices have been unbeatable. When our clients get quotes from Liere, they rarely get policies elsewhere. Finally, if you let them know "My friend "Jamie/Janet/Breanne" sent me, they will mail us a $100 gift card just because you got a free quote (and you too for your referrals in the future!). You don't even have to sign up for a policy, just get a quote. Their contact info is:
Flood Insurance is required by your lender if you are located in the flood plain, and optional if you are not. To determine if you are or are not in the flood plain for insurance purposes, your insurance provider will need to obtain an elevation certificate. If you are located in the flood plain, your flood insurance rate will likely be in the thousands (say $2,500 per year), and if you are not in the flood plain, flood insurance can be as cheap as $400 per year for an owner occupied home.
6. Title Policy
Title Insurance is explained in detail at this website administered by the Texas Department of Insurance. If you are obtaining a loan on the property, your lender will require Title Insurance, and typically in Texas, Sellers reimburse you for the cost of this title policy. Using the Survey, the Title Company will produce a Title Policy which explains to you the level of insurance coverage that they will underwrite and provide to you. If you are unclear of the items included or excluded in the Title Policy or their ramifications, we recommend that you consult an attorney to help you understand this better.
7. Loan
Please click this link and read through my Guide to Mortgages. And if you take away nothing else, please consider the following paragraph as the most important thing I can advise on the loan process:
Likelihood of Closing / Leaving you at the Altar
This is something that is REALLY important that is really difficult to explain to my clients, but said simply, everything has a price. If you want good service, you are going to have to pay for that. Conversely, if you find a lender who offers you a crazy low rate, there is a very real possibility that they might hang you out to dry when it comes to closing. We've seen it happen. Is 12.5 bps worth risking your earnest money or losing a house over? The lenders who we recommend might not offer you the absolute cheapest rate, but they do offer their word and reputation that they will do whatever is in their power to help you close, while still giving you a great rate.
These are the most common steps in the loan process:
8. Utilities
At least 2-3 weeks prior to closing, you will want to have utilities connected at the house in your name starting on the expected date of closing (or the date the sale-leaseback ends if you are doing one). Examples of utilities include Electric, Water, Gas, Sewer, Trash, Internet, Cable, Security. Many cities bundle Water/Sewer/Trash, and some HOA's provide these services separately. The Seller is required to disclose utility providers in the Seller's Disclosure Form, but if you are unsure of who your local providers are, we can gladly help you sort that out!
9. Your Red Pear Realty Commission Rebate
By this point, your lender should be fully aware of the Red Pear Realty Commission Rebate. From the time we make your initial offer through closing, we will do everything that we can to help you make the most of your Red Pear Realty Commission Rebate. For this reason, we prepare the offer and contract docs without mentioning your rebate to the Seller (so that they don't use this against you in the initial or option period negotiations). AFTER the option period is over and all contract details have been agreed between the Buyer and Seller, Red Pear Realty will provide a Commission Disbursement Agreement ("CDA") to your lender and title company with instructions on how you will be using your Red Pear Realty Commission Rebate. When you get the final Closing Disclosure (CD) from your lender, and the final settlement statement from the title company, you should make sure that the appropriate commission rebate has been applied. Omitting the commission rebate has historically been one of the most common mistakes made on the CD and settlement for our deals (because nobody does commission rebates like we do), so please pay close attention to these docs, and send to us for our review once you receive them.
NOTE: If the rebate exceeds closing costs, ask your lender to apply the excess rebate to discount, or reduce, your mortgage interest rate. It is important to choose a lender that understands the realtor rebate and checks these calculations up front. If you wait until you get the final Closing Disclosure from your lender to address this, it could delay your closing.
10. Final Walk-Through
As the Buyer, you should do a final walk-through as close to closing as possible to make sure that the property is in the condition that you expect before closing. Most Buyers spend about 10 minutes either the day before or day of closing walking around making sure that the Seller left the property reasonably clean, removed personal items that they should have, and didn't take anything that they should have left. Please let us know when you would like to schedule your final walk through after the clear to close has been provided by your lender.
11. Closing!
It's time to close. You've made it to the finish line, and its been a long, stressful, complicated, and hopefully not too frustrating process, but you are here. By now, you have:
When you are done signing, sit back, take it in, ask the Escrow Officer or Closing Administrator to take a picture or two of you at the closing table with a key, and bask in the glory of knowing that you did it! Congrats on CLOSING!
12. Post-Closing
After you close, you should file for a Homestead Exemption with your County Appraisal District if you will be occupying the home as your primary residence, or an agricultural exemption if you are buying a rural property. Every county is different, but many provide a form for you to mail in during a specified window of time in the Spring where you certify that you occupied the home as your primary residence as of January 1 of that year.
Have the exterior locks re-keyed. We are HUGE fans of the Schlage Connect/Sense electronic locks, and if you can buy and install these yourself, you won't spend much more than buying new locks and paying a locksmith to install them.
If your inspector didn't show you where your electric panel box and water shutoff valves are located, go find them now, BEFORE you have an emergency. If you spring a water leak, or need to turn off a circuit, every second counts.
Also, go back and find your inspection report and spend a few hours fixing all of the "little" deficiencies that were identified.
You are going to get a BUNCH of spam mail via USPS from people trying to scam you. Some might offer to sell you mortgage payoff insurance or might offer to record your deed for a fee (this is already done at closing). When they include a pre-paid return envelope, I will toss the other stuff in the trash and drop the empty pre-paid envelope in the mailbox so that the scammer incurs a little extra cost of doing "business". Sometimes we even send them a very nice note.
Finally, the County Appraisal District might also try and get you to tell them how much you paid for your home via a very official looking letter. DO NOT DO THIS. Texas is a non-disclosure state, and if you disclose your purchase price to them, they will tax you accordingly.
6. Title Policy
Title Insurance is explained in detail at this website administered by the Texas Department of Insurance. If you are obtaining a loan on the property, your lender will require Title Insurance, and typically in Texas, Sellers reimburse you for the cost of this title policy. Using the Survey, the Title Company will produce a Title Policy which explains to you the level of insurance coverage that they will underwrite and provide to you. If you are unclear of the items included or excluded in the Title Policy or their ramifications, we recommend that you consult an attorney to help you understand this better.
7. Loan
Please click this link and read through my Guide to Mortgages. And if you take away nothing else, please consider the following paragraph as the most important thing I can advise on the loan process:
Likelihood of Closing / Leaving you at the Altar
This is something that is REALLY important that is really difficult to explain to my clients, but said simply, everything has a price. If you want good service, you are going to have to pay for that. Conversely, if you find a lender who offers you a crazy low rate, there is a very real possibility that they might hang you out to dry when it comes to closing. We've seen it happen. Is 12.5 bps worth risking your earnest money or losing a house over? The lenders who we recommend might not offer you the absolute cheapest rate, but they do offer their word and reputation that they will do whatever is in their power to help you close, while still giving you a great rate.
These are the most common steps in the loan process:
- Make your Lender aware of your Red Pear Realty Commission Rebate.
- Apply with the lenders electronic system.
- Provide your Lender with your relevant financial documents as requested. These will get VERY detailed.
- Provide your Lender the executed contract documents as soon as they are available.
- Lender provides your Initial Closing Disclosure. These are typically conservatively prepared for your benefit.
- Credit Approval must be provided by the lender prior to the expiration of the Third Party Financing Addendum contingency period, or you lose the ability to terminate the contract based on financing approval.
- Appraisal
- Conditional Approval will be received and your lender may follow up with more requests from you like to provide updated bank statements or additional documentation.
- Clear to Close! This is your final loan approval!
- Lender provides your Final Closing Disclosure ("CD") and final Cash to Close amount.
8. Utilities
At least 2-3 weeks prior to closing, you will want to have utilities connected at the house in your name starting on the expected date of closing (or the date the sale-leaseback ends if you are doing one). Examples of utilities include Electric, Water, Gas, Sewer, Trash, Internet, Cable, Security. Many cities bundle Water/Sewer/Trash, and some HOA's provide these services separately. The Seller is required to disclose utility providers in the Seller's Disclosure Form, but if you are unsure of who your local providers are, we can gladly help you sort that out!
9. Your Red Pear Realty Commission Rebate
By this point, your lender should be fully aware of the Red Pear Realty Commission Rebate. From the time we make your initial offer through closing, we will do everything that we can to help you make the most of your Red Pear Realty Commission Rebate. For this reason, we prepare the offer and contract docs without mentioning your rebate to the Seller (so that they don't use this against you in the initial or option period negotiations). AFTER the option period is over and all contract details have been agreed between the Buyer and Seller, Red Pear Realty will provide a Commission Disbursement Agreement ("CDA") to your lender and title company with instructions on how you will be using your Red Pear Realty Commission Rebate. When you get the final Closing Disclosure (CD) from your lender, and the final settlement statement from the title company, you should make sure that the appropriate commission rebate has been applied. Omitting the commission rebate has historically been one of the most common mistakes made on the CD and settlement for our deals (because nobody does commission rebates like we do), so please pay close attention to these docs, and send to us for our review once you receive them.
NOTE: If the rebate exceeds closing costs, ask your lender to apply the excess rebate to discount, or reduce, your mortgage interest rate. It is important to choose a lender that understands the realtor rebate and checks these calculations up front. If you wait until you get the final Closing Disclosure from your lender to address this, it could delay your closing.
10. Final Walk-Through
As the Buyer, you should do a final walk-through as close to closing as possible to make sure that the property is in the condition that you expect before closing. Most Buyers spend about 10 minutes either the day before or day of closing walking around making sure that the Seller left the property reasonably clean, removed personal items that they should have, and didn't take anything that they should have left. Please let us know when you would like to schedule your final walk through after the clear to close has been provided by your lender.
11. Closing!
It's time to close. You've made it to the finish line, and its been a long, stressful, complicated, and hopefully not too frustrating process, but you are here. By now, you have:
- Received your Clear to Close from your lender;
- You and your Red Pear Realty representative have signed off on your final CD and settlement statement and confirmed that your Red Pear Realty Commission Rebate is being applied correctly;
- You've confirmed the final Cash to Close based on these statements, and confirmed whether the title company will accept a wire transfer or cashier's check for this amount;
- You've set up all necessary utilities;
- You've done your final walk-through;
- You've either wired the Cash to Close to the Title Company no later than the day before closing, or are bringing a cashier's check to closing (many Title Companies require a wire transfer, so please be sure to ask them before bringing a cashier's check);
- Brought a state issued ID and a blank personal check in case there is a small last-minute change to the closing statement;
- Prepared yourself to sign A LOT of documents before the lender will hand over your loan and you can officially close.
When you are done signing, sit back, take it in, ask the Escrow Officer or Closing Administrator to take a picture or two of you at the closing table with a key, and bask in the glory of knowing that you did it! Congrats on CLOSING!
12. Post-Closing
After you close, you should file for a Homestead Exemption with your County Appraisal District if you will be occupying the home as your primary residence, or an agricultural exemption if you are buying a rural property. Every county is different, but many provide a form for you to mail in during a specified window of time in the Spring where you certify that you occupied the home as your primary residence as of January 1 of that year.
Have the exterior locks re-keyed. We are HUGE fans of the Schlage Connect/Sense electronic locks, and if you can buy and install these yourself, you won't spend much more than buying new locks and paying a locksmith to install them.
If your inspector didn't show you where your electric panel box and water shutoff valves are located, go find them now, BEFORE you have an emergency. If you spring a water leak, or need to turn off a circuit, every second counts.
Also, go back and find your inspection report and spend a few hours fixing all of the "little" deficiencies that were identified.
You are going to get a BUNCH of spam mail via USPS from people trying to scam you. Some might offer to sell you mortgage payoff insurance or might offer to record your deed for a fee (this is already done at closing). When they include a pre-paid return envelope, I will toss the other stuff in the trash and drop the empty pre-paid envelope in the mailbox so that the scammer incurs a little extra cost of doing "business". Sometimes we even send them a very nice note.
Finally, the County Appraisal District might also try and get you to tell them how much you paid for your home via a very official looking letter. DO NOT DO THIS. Texas is a non-disclosure state, and if you disclose your purchase price to them, they will tax you accordingly.