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Contract to Close | What to Expect

It’s a process—from the time a Buyer and Seller have a “meeting of the minds” and a ratified contract, there is a clearly defined process that real estate professionals call “contract-to-close.” Clearly defined, by the way, does not mean simple, fast or easy. It is a process on both sides: Buyer and Seller. If the Buyer is obtaining financing to purchase the home then all parties involved in the transaction are at the mercy of the loan process.
Since the majority of real estate transactions involve financing, we are going to take a look at the contract-to-close process involving a seller who has a mortgage to pay off and a Buyer who is getting a conventional loan.
The Journey from Contract to Close
The Buyer’s Agent will send a contract to the Buyer’s lender who will start the process of collecting all the information from Buyer (also referred to as the borrower) and from the Buyer’s Agent regarding the property and the transaction.
Phase 1: Contingency Periods
A contingency is a condition to the contract that must be fulfilled or removed by a certain date.
The three typical contingencies in residential contracts here on the Alabama Gulf Coast are home inspection, insurance and appraisal.
Home Inspection
The Buyer’s Agent will provide the Buyer with a list of names of professional home inspectors and will schedule the inspection with the inspector the Buyer has chosen. The Buyer and Agent will review the inspection report and determine whether the Buyer wants to ask the Seller to make any repairs to the home. If so, the repair requests will be presented to the Seller’s Agent by the Buyer’s Agent in the form of an addendum. If the Seller agrees to make repairs then the Buyer’s agent removes contingency. Repairs are always negotiable and agents will negotiate on behalf of Buyer and Seller.
This is where deals can fall apart usually because of two things: the Buyer perceives this as an opportunity to make a grocery list of items they would like to have “fixed” or the house really does have major issues the Buyer does not want to live with.
Homeowners Insurance
Insurance can be an unexpected stumbling block. So the Buyer needs to get quotes right away to make sure the insurance premium will not increase the monthly payment more than the Buyer anticipates. Here in Southern Alabama, wind and flood insurance coverage can be a real deal killer. When/if the insurance is satisfactory to the Buyer, the contingency will be removed.
After the home inspection and insurance contingencies are cleared, the lender will order the appraisal. In all transactions where a Buyer is financing, the house must appraise for at least the loan amount and in most cases it must appraise for purchase price–depending on how the contract was written and the loan-to-value (how much the Buyer’s down payment is versus the value of the house.) If/when the appraisal meets the contract requirements, the contingency is removed.
Phase 2: Satisfying All Requirements of Contract
After the contingencies are removed, both Buyer’s agent and Seller’s agent along with the closing agent at title company or attorney firm will work together to ensure that all other requirements of the contract are satisfied. These are items such as pest inspections, title search and title coverage, provision of home warranty, provision of survey or plat and provision of termite bond.
The closing agent has the burden of making sure that all aspects of the contract have been satisfied before the contract can be executed and the transaction funded.
Phase 3: Preparing For Closing
The Buyer must contact all utility companies and request service to be transferred to his/her name. Seller will in turn contact all utility companies and set a disconnect date usually a day or two after closing to give buyer more time if needed.
Seller needs to gather together all keys, garage door openers, appliance manuals and warranties pertaining to anything in the house. Seller can take 2 keys and a door opener to closing for title agent to give to the Buyer and leave the excess in house.
Buyer needs to secure a cashier’s check or certified funds for closing. Personal checks are NOT acceptable. The Buyer’s lender will provide the exact amount to the Buyer.
Final Phase: Executing/Closing the Transaction
If all goes well the Buyer will spend typically 30-45 minutes with the closing agent and the Seller will usually spend 10-20.
Although there is some stress that usually accompanies any real estate transaction, the outcome should be a win-win.

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