Congratulations! You’ve found a buyer for your home. Your thoughts are you are done. Right?
You are not quite there yet.
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. 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 contingences or example with the inspection or appraisal), that money gets returned to the buyer. Usually. However, if buyers backs out 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.
Seller’s Disclosure Report
As soon as you accept an offer, you will need to supply the buyer with sellers disclosures, basically an itemized list of any problems with the house, for example:
- 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. Because withholding information could come back to haunt you. After all, the seller will find out sooner or later, so it’s best to be up front.
Unless you have sold the home “as is”, 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.
Mostly, the buyer may want some repairs done after reviewing the seller’s disclosure and conducting the inspection. You as seller may be asked to get items from report fixed or give the buyers a credit so they can pay for repairs themselves. While fixing, it yourself may seem cheaper, it is faster to offer a credit.
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 healthy. So, the appraiser will not only assess your home in person but inspect the sale prices of comparable houses in your neighborhood. If the appraiser’s price matches the one your buyers are paying or if it is higher, it is all good.
However, if the appraisal comes back lower than the asking price, it may become a problem. Typically, lenders will not 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. As seller, you also have two options: Accept the lower home price, or walk. To decide, you should think back how easy would it be to find a new buyer? If you were bombarded with offers, it may be in your interests to move on. To add, unless you are confident your home is worth more and you are willing to put house back on the market, you may want to lower your price just to keep moving forward.
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