Earlier this week we introduced the players in a real estate deal (I forgot the Appraiser so I just updated the post). Today it’s how the real estate deal goes down.
After weeks on the internet looking at homes or driving around weekends looking at signs, the potential buyer calls a Realtor. The call usually starts with a breathless buyer asking to “see a house” or “know more about a house.” Sooner or later the Realtor usually asks if the buyer has spoken to a mortgage professional about a loan, or if they plan on paying cash. The Realtor then throws the ball to the mortgage person.
The mortgage person calls the Realtor back after talking to the buyer. Mortgage people don’t discuss a buyer’s financial situation with a Realtor, but give them a simple thumbs up or thumbs down on the price (or the buyer). Sometimes the mortgage broker will tell the Realtor how to structure the offer to better meet the buyer’s goals.
From there the Realtor takes the buyer out to look at properties. Ideally the buyers find something they love and write an offer that is accepted. The Realtor prepares the offer on a standard, state-approved, fill-in-the-blanks contract. The buyer usually has to put some money down (“consideration” in contract terms, also called “the binder” or “earnest money deposit”) and writes a check to an escrow account located either with the real estate company, a title company, or an attorney.
At this point the buyer must make formal loan application if they have not done so already.
The home inspection and pest inspections are next. Assuming the buyer’s financing is good, the inspection phase is the last chance the buyer has to get out of the deal without endangering the money he or she put down. If the inspections are unsatisfactory, the buyer can typically walk and retain his deposit if he otherwise follows the deadlines for notice spelled out in the contract.
If inspections are satisfactory (sometimes this requires the seller ponying up for repairs), the bank orders the appraisal. If the appraisal comes back at or above the purchase price the deal moves forward. If the appraisal comes in low the bank may still loan the money, but the buyer or seller will have to make up the shortfall. In some cases the buyer will put more down, in some cases the seller reduces the price, in some cases the two sides agree to disagree and the transaction is canceled.
At this point a survey is ordered. A survey is tangible proof that the property exists, and verifies the location of the property. Occasionally a survey will uncover the fact that the buyer is not buying what the buyer thinks he is buying, or that buildings on the property are actually located at least partly on someone else’s property (called an “encroachment”), or vice versa.
The title company is also working hard at this point, researching the records, and making sure the home is saleable in the respect that all the leins, mortgages, taxes, etc. are able to be taken care of with the money from the sale. Sometimes a lein or an encroachment will make a property unsaleable, in that there is too much risk for the lender to lend on it, or the lein can’t be satisfied by the purchase price. Due to Florida homestead law it is not unusual for people not listed on the deed to have an ownership interest in the property, and these people have to sign off on the sale as well (and may be due some of the proceeds). This is why in Florida sellers cutomarily pay for the owner’s title insurance policy: it’s their responsibility to prove that they actually have the right to sell it.
As this is going on the buyer is also shopping for and then binding insurance on the property.
In the background all the loan paperwork and underwriting is going on with the lender.
As closing approaches the title company is working hard to tie the loose ends of the deal together for the closing date. Talking with all parties involved, making sure everyone gets paid, putting together the settlement statement, and trying to pull it off seemlessly. Still, the title company and everyone involved are ultimately at the mercy of the lender’s “package” (read: money) showing up in time for closing. Most of the time it does. Some of the time it shows up the same day (but late). Less of the time it shows up the next day or next week. This can be stressful.
When the money shows and everyone’s been paid, the title offcially moves to the buyers and the keys are handed over.
And all parties but the buyer and seller wake up the next morning and do it all over again. In real estate it’s a truism that as soon as you’re paid, you’re unemployed.