When you have a signed contract with the buyer for your home, you may feel as if you can breathe a sigh of relief. While it’s certainly true that you can lighten up on the perfectionism required to show your home at any moment, as a seller you still need to cooperate with your buyer, the buyer’s agent and the commitments made in the contract.
In other words, before you can completely relax you need to get to the settlement table.
Contingencies and Sellers
While the burden is on the buyer to finalize financing for the home purchase and to obtain homeowners insurance, some contract contingencies will impact you, too, especially if you’re living in the home. Most transactions include a home inspection, so you’ll need to make your home available to the inspector and then negotiate with the buyers about anything the inspection turns up according to the terms of your contract.
Besides the home inspection, some contracts and some lenders call for a termite inspection and a radon gas inspection. In each case, you or your listing agent or the buyer’s agent will need to make the home available for inspection.
Another important step prior to closing is the appraisal. If the appraisal comes in higher than the sales price, then the buyers can relax and be happy that they have purchased a home for less than its market value. Once the contract has been signed, you as the seller cannot renegotiate the price higher. However, if the appraisal comes in lower than the sales price, then the buyer’s lender will limit the loan amount to that lower value. The buyer may have to come up with additional cash to cover the financing gap or may ask you to renegotiate the contract. Your agent can advise you about the best way to handle this situation, but in any case you and the buyer are also bound by the contract terms.
Before you go to settlement, you and your listing agent should go over the contract and make sure you’re fulfilling all the promises you made in terms of what items will be conveyed to the buyer and any repairs or improvements you promised to make.
Buyers and sellers typically negotiate a settlement date that is mutually agreeable. If you have sold your home and are not yet ready to move into your next residence, you can sometimes negotiate a “rent-back” with the buyer that allows you to stay in the home after the settlement by paying rent to the buyer.
Alternatively, some sellers allow the buyers to move in before settlement. In either case, it’s crucial to have a written agreement about who is responsible if something happens to the house or its contents during the transition period. Generally, you’re restricted to a maximum rent-back of 60 days because lenders would require the buyers to finance the home as an investment property if the rental period is any longer.
The decision about who provides settlement (also known as closing or escrow) services varies from one market to another. In many places, the buyer chooses the settlement company, but in others the seller chooses. At the closing, the buyer will provide funds to buy your home and the settlement agent will review the sales agreement to determine what payments you’ll receive. The title to the property is transferred to the buyers and arrangements are made to record that title transfer with the appropriate local records office.
At a typical closing, adjustments are made to the final amounts owed by the buyer and you as the seller. For example, if you’ve been paying your property taxes through an escrow account, you may be credited extra for prepaid taxes or you may receive less money at settlement if the property taxes haven’t been paid properly.
Once the settlement papers are signed and the house keys are transferred, you’re free to move onto your next home.