Here’s What Happens When You’re Under Contract
One of the most common questions buyers have after their offer has been accepted is “what happens next?” Once you’re under contract, certain pieces fall into place, but it’s not until closing that the transaction is truly complete. And the process can get stressful; about 40% of Americans say that buying a house is the most stressful life event they could possibly go through.
When a transaction is under contract, pending, or contingent, the home is in a transitional state between the time when the sellers accept the buyers’ offer and when the sale is fully finalized. Typically, this process includes meeting any contingencies, setting up mortgage financing, appraising, inspecting, and more.
Going under contract, in many ways, is a bit of a waiting game that can get complicated. But understanding the process can help reduce stress when your transaction is getting underway. Here’s a breakdown of what happens after an offer gets accepted.
Sign the Papers
The first thing that happens is the most obvious: the buyers and sellers sign a purchase agreement. This contract is important because it protects both parties during the transaction process. Part of this contract includes the earnest money deposit (EMD) amount, a negotiated payment from the buyer to the seller to demonstrate that the buyer is serious about purchasing the home. Typically, this amount is 1-5% of the home’s sale price.
The purchase agreement also outlines things like purchase price, buyer financing, closing costs, contingencies, any items coming with the sale like appliances, as well as timelines for contingencies, and offer expiration date, and closing date.
Once the sellers have cashed the EMD and all conditions for sale as outlined in the purchase agreement are met, the buyers are legally allowed to purchase the property.
Some negotiating can happen in this process, including repairs, adjusting timelines, or overall purchase price. The best thing to do is be patient, check your email, and trust your broker to advocate for your needs.
Meet Your Contingencies
After the sellers accept an offer, the home is listed in the Multiple Listing Service (MLS) as “pending” or “contingent.” While both terms sound similar, they are in fact different. If a property is listed as contingent, that means certain conditions must be met before the transaction can proceed to the next steps.
The Four Most Common Types of Contingencies
A financing contingency means mortgage loan terms must be approved. Typically, the approval letter from the buyer’s financial institution would have already been submitted to the seller. In any case, all conditions related to finances must be met in order to proceed. This process includes buyers completing a mortgage application.
An appraisal contingency means that the lending financial institution will send an appraiser into the house to value the home. This process ensures that the lender is loaning an amount of money that’s fair and appropriate for the given market. If the appraiser’s evaluation deems the property’s value under the negotiated sale price, the parties can re-negotiate or the buyers can withdraw.
An inspection contingency is important because an inspector can make sure that a home meets local building codes. This is an important protection method for the buyer because if the inspector finds problems with the property, the buyer can ask sellers to repair the issues or withdraw. Many times, when buyers back out of sales, it is due to a failed home inspection. This process includes scheduling a time for an inspector to visit the home; make this a top priority, as there is often a small window specified in the purchase agreement to get this done.
A home sale contingency means that a buyer will buy the sellers’ property, but only after their own property has sold. This is common in real estate contracts because many times, buyers are also selling their current home as well.
Other Action Items
Request a quote for homeowner’s insurance, ideally within one week of signing. Your agent will be able to refer you to insurance agencies if you’ve never purchased it before. Once you decide on a quote/policy, be sure to pass that information onto your lending financial institution. It is common to pay premiums upfront. Buyers sign loan documents once everything regarding home financing is squared away.
Then, the appraiser will conduct their evaluation. The turnaround time for results is typically 1-2 weeks. They will look at the home’s structure and bones objectively, without considering aesthetics, to make a fair determination of market value. If the number is too low, buyers have the option to negotiate or walk away.
After completing those processes, the buyers do a final walk-through, noting items that would be left behind by the sellers such as appliances and fixtures. They check that the home is in the condition agreed upon at the purchase agreement signing.
Be sure to set up utilities like water, gas, electric, internet, phone, and cable before moving as well.
Then, it’s finally closing time. The buyers and sellers will meet at the closing attorney's office for an hour to sign papers and exchange funds. Buyers will want to get their funds together ahead of time while the real estate agent helps them prepare documents to bring. A day or two before the Final Closing Disclosure, buyers will wire over the necessary funds to prohibit delays. Be vigilant about wiring money, as wire fraud schemes have become popular in recent years. Read this blog post on my website to learn more.
Then, and only then, can buyers schedule their moving day.
The process can feel long and complicated, but as a seasoned Winter Park real estate broker, I’m experienced in the closing process and can help with any questions or concerns along the way. The key is keeping an eye on your email – which shouldn’t be a challenge as you anxiously await closing! – and trusting the process.
Call me to learn about real estate opportunities in the Winter Park area and to learn how I can make your transaction run as smoothly as possible.