Hooray! You’ve found a buyer for your home. You’re done, right? Right?
Not quite. All you have to do now is get yourself—and your house—ready to close, and we’re here to help, with this week’s installment of our weekly step-by-step Home-Selling Guide. Let’s dive in!
When the buyer makes an offer on your house and you accept, the buyer will write you a check for a deposit known as earnest money. Everyone at some point gets a bit puzzled by earnest money. It comes down to a simple idea: This is money you put forward that proves that you are earnest about your intentions to move forward on the deal. These funds are held by a third party until you close the deal; on average, buyers pay about 1% to 2% of the offer amount.
If the deal goes through, the earnest money becomes part of the buyer’s down payment (or full cash payment). If the deal falls through because you’re unable to meet the buyer’s contingencies (for example with the inspection or appraisal), that money gets returned to the buyer. Usually. However, if buyers back out just because they randomly change their mind, you get to keep that money for all the hassle—consider it a hefty consolation prize for having to put your home back on the market.
The seller’s disclosure
As soon as you accept an offer, you will need to supply the buyer with a seller’s disclosure—basically an itemized list of any problems with the house or surrounding area. But how much do you have to disclose?
It all depends on your state laws. The legal site Nolo.com has a list of disclosure laws for various states, and your agent can also provide you with the requirements for your area. Generally, expect to dish the dirt on:
- Basic information about the house, like the age or utility costs
- Structural problems, like the condition and age of the roof
- Environmental issues, like if the property is located in a flood plain
- Known issues, like flooding in the basement
Even if your state doesn’t have strict requirement rules, you can also disclose more than the minimum, and it may make sense to do so. “I always advise sellers to include as much information as possible,” says Cathy Baumbusch, a Realtor® with Re/Max Executives in Alexandria, VA. It sounds counterproductive—after all, you don’t want to scare the buyer away—but withholding information could come back to haunt you. Like poltergeist-level haunting.
After all, the seller will find out sooner or later, so it’s best to be up front.
Unless you’ve sold the home “as is” (and sometimes even if you have), the buyer will want an inspection on the home. The inspector’s job is to look for problems like:
- Roof damage
- Structural problems
- Plumbing problems
- Fire hazards like bad wiring or improperly working chimneys
- Major appliance and HVAC issues
Since the buyers hire the inspector, the report will go to them. If they spot anything amiss, trust us, you will hear about it, as it may become a negotiation point you’ll have to work out before you close.
Basically, the buyer may want some repairs done after reviewing the seller’s disclosure and conducting the inspection. The repairs have to be legit problems (the buyer can’t just walk because the stove is outdated). “You may be asked to get it repaired, or give the buyers a credit so they can pay for repairs themselves,” says Baumbusch. While fixing it yourself may seem cheaper, it’s faster to offer a credit, so be sure to consider what a delay would cost you.
If your buyers are getting a mortgage, they will also have to hire an appraiser. An appraiser is similar to an inspector, in that he comes to your house and checks it out, top to bottom. Only the purpose is different: Rather than looking for problems and repairs, an appraiser is trying to estimate what your home is worth, so that the lender knows the investment is sound. To do that, the appraiser will not only size up your home in person but check out the sale prices of comparable houses in your neighborhood (much as a Realtor would do for you). If the appraiser’s price matches the one your buyers are paying (or even if it’s higher), all is good.
But if the appraisal comes back lower than the asking price, it may become a problem. Typically, lenders won’t loan buyers anything above the appraisal amount. The buyers have two choices: Pay cash for the difference, or negotiate a lower sale price with you. If they choose the latter, you’ve got two choices, too: Accept the lower home price, or walk. To decide, ask yourself: How easy would it be to find a new buyer? If you were deluged with offers, it may be in your interests to move on, but keep in mind that you might run into the same problem with subsequent appraisals. So unless you’re confident your home is worth more and you’re willing to head back to square one, you may want to take a hit just to keep moving forward.
Next up? The close. Hallelujah! We’ll tell you what you need to know about that next week.