Step 5: Escrow, Inspection & Appraisal
Buyer and Advisor Role
Once your offer is accepted, your binder deposit will need to go into the sellers choice of escrow account, either a title company or an attorney will hold this money and credit it toward your closing costs at closing. You’ll be given a timeline to mark every stage in the process up to closing. Meeting these requirements on time ensures a smooth flow of negotiations so that each party in not in breach of their agreements. Your Advisor will keep you constantly updated so you will always be prepared for the next step.
Most NEFAR contracts have a 10 day inspection period (unless specified differently), to perform any inspections necessary for you, the buyer, to feel comfortable with the purchase. Your Advisor will have resources of inspectors including whole home, pest, roof, pool, septic, HVAC, plumbing, etc.. This is your due diligence period to also check for future property changes such as building a pool, barn, garage, dock, etc. and you are responsible for all inspection fees upfront, as the buyer.
Depending on the outcome of these inspections, on of two things may happen:
Either each milestone is successfully closed and the contingencies will be removed or
Your Advisor, on your behalf, may enter a second round of negotiations with the seller with a Repair, Replace, or Treatment Agreement. If repairs are made, they must be made by a licensed contractor, or sometimes buyers and sellers may settle for a monetary concession/credit in lieu of repairs or replacement.
If financing, a Wood Destroying Organism (WDO) inspection (termites, and other insects) must be done and any damage must be repaired or replaced for certain loan programs. The timeline of this inspection and negotiation period are very important to the transaction. Your Advisor will be in touch with you every step of the way to provide assurance this process is adhered to.
The Lender’s Role
It’s imperative that you keep in close contact with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. If financing, a home appraisal will be ordered by your lender and paid upfront by you, as the buyer. The lender wants to be sure that the property is being purchased at true market value, so they will choose a licensed appraiser through a third party. If the home appraises, you and your Advisor have cleared another contract contingency and are very close to the finish line! If you’re paying cash for a home, an appraisal is recommended, but not required (as is the inspection).
Homeowner’s Insurance is often recommended by your lender or Advisor, or you can shop around for property insurance. Most lenders will require that you have a homeowner’s insurance binder (proof of insurance) before they will close the loan.
The Closing Agent’s Role
While you and your Advisor are crossing items off your list, the closing agent, often a title company, is conducting their own diligence to prepare to transfer the title of the property into your name or estate, as the buyer. They will contact you to discuss the best way to hold title. The closing Agent will also perform a title search, order a property survey (buyer expense at closing), and ensure there are no liens, encumbrances, or encroachments on the property and that it is free and clear to transfer. Many buyers also purchase title insurance with a one-time fee at closing. The closing agent is also responsible for obtaining prorated payoff’s for taxes, CDD fees, HOA dues, Association fees, etc.