I feel lucky to be able to say that I am representing a buyer in a contract for the sale of a piece of real estate. While the market had been deathly quiet, we have been seeing more activity since about August of 2011. Our buyers are staying in the range of below $400,000. The turn in the economy has to start somewhere and I am happy to see the motion.
The signing of a contract is preceded by some verbal back and forth of negotiation. An agent sighs with a little relief once the signatures are on the contract, but really it is just the beginning of a steady stream of details that require everyone’s attention.
The contract copies are accompanied by a lawyer’s worksheet and mailed to the lawyers chosen by each party. This worksheet provides contact information for all parties to the contract, the bank, the home inspector, surveyor and the pest control company. The contract contingencies are spelled out for both lawyers.
A buyer may have contacted a mortgage banker about the possibility of a loan, as they began the process of looking at properties. Now, with a verbal acceptance, the buyer starts the ball rolling on the loan process.
The signed contract is forwarded to the banker. The buyer gets qualified for the loan and then the property has to qualify. The appraisal, title search, and flood insurance are the major hoops for qualifying the property.
The appraisal is arranged by a third party organization. Neither the agent nor the banker can affect the outcome. The title search and subsequent insurance are handled by the lawyer for the buyer. The attorney is looking for anyone else who might have some ownership or a lien on the parcel. The lawyer is protecting the buyer by looking for any defects in the title to the property. For flood insurance, one needs an elevation certificate to validate the height of the building above the base flood of 6 feet. An insurance agent will write the federal policy.
The seller’s attorney needs to prepare the deed and present it to the buyer’s attorney for review. The seller’s attorney will then hold it in his or her safe until the day of closing. They will also review the HUD statement prior to closing to verify all of the money coming in to the closing and expenses paid out of the closing. Their job is to protect the seller and guarantee that the conditions of the contract are being met. The seller’s attorney has the lightest work load.
The buyer’s attorney is responsible for the bulk of the work in getting to closing, such as the title work and preparing the note and deed of trust for the buyer, according to the instructions of the bank. When the buyer borrows money from the bank to buy the house, he or she signs a promise to pay what is called a promissory note. The deed of trust is the document which secures the debt for the bank by using the house as the collateral for the loan.
The buyer’s lawyer also prepares the HUD. This document is written by the U.S. Department of Housing and Urban Development and is defined as a standardized settlement statement to be used in all residential real estate closings. The “HUD,” as we refer to it, is subject to a piece of consumer protection legislation called RESPA. All lenders must provide their buyers with specified information with regards to their transaction — the buyer has the right to know. The lawyers for both parties are charged with the responsibility of correctly preparing and reviewing the HUD.
On top of everything else, the buyer’s attorney orchestrates the closing, actually securing the signatures on all of the buyer’s closing documents, receiving the signed deed from the seller’s attorney, cutting the checks to pay off the seller’s existing loan on the property or to pay the real estate commission or to pay the pest control company as examples. The buyer’s lawyer also immediately registers the deed in the courthouse after closing to protect the buyer.
The loan and the legal documents are the big stuff in a real estate transaction, handled by the banker and the lawyer. All the other details and contract contingencies plus the monitoring of the big stuff are the responsibility of the real estate agents.
The agent might be the one to spur the buyer to start the loan process. A normal contingency in a contract would be a commitment letter from the bank, qualifying the buyer for the loan. It would be the agent pushing the bank for this letter. This letter provides an assurance to the seller that this deal is one big step closer to going to closing.
When the house gets appraised or inspected, it would be the agent who works to get the service provider into the property. Just imagine what it looks like when the home inspector finds something that is less than positive about the house. The two agents step in to work with the buyer and seller on getting to a mutually agreed upon resolution.
When it comes time for the insurance to be quoted, it often is the agent who would call for the elevation to be shot or would take pictures of the property for the off-island insurance representative.
We call for the pest/termite inspection but have to time it to occur not more than 60 days before closing.
The agents have to work together to make the change over in the property management. Rents have been collected and prepaid to the seller for rental periods that were occurring in the future. Think about the utility accounts and services which have to be adjusted. The agents have to get sellers to sign off on certain accounts and get buyers to make application for their own utility accounts. We schedule the reading of the water and electric meters on the day of closing.
Lawn care and trash pickup choices have to be made. Any personal property that the seller is keeping has to be removed prior to the sale. Knowing that the county needs a little help with their systems, one of the agents will send out transfer letters to the health department and the tax office notifying them of a change in ownership. We have to collect all of the keys to the house and make sure that they get to the new owners.
After the initial bump of having a signed contract, the sale process enters into a “due diligence” period. This is an agreed upon amount of time where the buyer can evaluate the prospective property and decide to continue with the purchase or to walk away, with the return of the earnest money.
This time frame feels like you have been climbing a very steep hill. You are never quite sure if a deal is really going to happen. Buyers have to get qualified and then the property takes a turn. And then, finally, you reach the peak. A decision to proceed is made by the buyers. You start heading down the other side. It becomes a matter of lining up all of the details. There can be a lot of details, many specific to the property.
After 30 years of selling real estate, I have created a check list of every closing detail I can think of. I use highlighters to distinguish the immediate from the not so urgent. There is the pleasurable act of crossing off yet another detail from the list.
I remember the words of acknowledgement from one buyer who became a friend after the sale. She confessed that she really had no idea how much the agent handles in a real estate closing. She was thankful for the guidance. How could she have known? Buying a house is something that most people only do once or maybe twice in their lives.
I chuckle to myself when I hear someone say that real estate agents just kick back and wait for the checks to come in. That is so not true.
(B.J. Oelschlegel has lived on Ocracoke Island for more than 30 years and has worked in the real estate business for almost as long. She is a broker with Ocracoke’s Lightship Realty and a real estate columnist for The Ocracoke Observer. You can reach her by e-mail at [email protected])