Closing on a Home

| step 1: preparing to buy | step 2: needs vs. wants | step 3: searching | step 4: closing

Closing on a home is a complicated, multi-step process that requires the guidance of an experienced and hard-working real estate agent.

In general, there are a phases to the closing process, each of which is important, and each of which presents challenges in different ways.

In order to help you learn more about the closing process I have outlined the process in 6 primary steps.

Steps to Closing the Purchase on a Home:

• Step 1: Making an Offer
• Step 2: Home Inspection
• Step 3: Negotiations (Price, Repairs and Concessions)
• Step 4: Re-Inspection
• Step 5: Meeting and Releasing Contingencies
• Step 6: Signing & Recording

The most important thing to remember when writing a contract offer to purchase a home is that you are the person writing the contract. All of the terms it contains are yours to dictate. This allows the first version to be exactly what you would want under the best circumstances.

The contract will need to include contingencies, a purchase price, requests for personal property and an expiration date and time. Setting the expiration time can have as much impact as the offer price. Having your agent ensure that the request for response is in line with how the seller can operate is essential. What is also important is ensuring that you don’t allow so much time that the seller is able to encourage other offers which could escalate the price and possibly lose you the home.

Once you are comfortable with the offer, your real estate agent will present it to the agent who represents the seller. That agent will then present it to their client. At this point the seller can accept the offer and its terms or they can reject the offer completely. In most cases the seller will submit a counter-offer.

There are a few things to remember when the negotiations begin:

• Make yourself available. By law, the seller can accept offers on their property until there is a SIGNED contract in place, so if you can complete negotiations in one session, you're more likely to get the deal done. In many negotiations, there will be multiple offers and counter-offers so be prepared.
• Be flexible. If the offer you make is your final offer, you're probably not going to get the deal. In real estate, the ultimate goal is to create a win-win environment where all parties feel comfortable with the end result. Obviously, you want to get the best value you can for the home, but by making concessions on your contract, you can still wind up with a good deal. Ask your Realtor for their opinion. They know the market, they know the true value of these homes and they can help to guide you through to the finish line.

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A home inspection is a thorough and systematic evaluation of the condition of a residential property. It is a comprehensive physical exam of the general integrity, functionality, and overall safety of a home. The purpose of this process is to ensure that home buyers know exactly what is being purchased and are given the opportunity to see “under the hood” prior to completing the transaction.

In the course of a home inspection, the inspector will evaluate the foundation, framing, roofing, attic, plumbing, heating, electrical system, fireplaces, chimneys, fences, stairs, decks, patios, doors, windows, walls, ceilings, floors, pavement, built-in appliances, and numerous other parts of the home.

Building defects are found in all homes, new and old. It is an inspector’s job to identify such defects during the course of an inspection and then verbally explain them to his or her client along with a written report.

The information supplied in a home inspection report allow the buyer to determine if they want to remove their offer to purchase or continue moving forward with a straight forward purchase or negotiations of the repairs, price or other items which are deemed negotiable by the two parties. Having a real estate agent there to support you in deciding what requests are standard, not standard, and inappropriate and which are possible deal breakers is essential. It is also important to have the agent in place to negotiate for the buyer in the case that repairs or changes are requested of the initial contract. A home inspection is an essential component to any educated buyer’s decision to partake in a real estate transaction.

Top 10 Repairs Identified from an Inspection

• Roofing defects
  Roofing problems are often caused by aging or improper installation. It does not always mean the roof needs to be replaced. In many cases roof defects are repaired without being completely replaced. Recently building code for roofing changed from allowing the addition of a third layer of shingles on top of two existing sets to only two sets or layers of shingles.
• Ceiling stains
  Ceiling Stains follow up roof defects. Typically this is the case because what leaks into the attic, stains the ceiling and leaks through the ceiling. The challenge is determining whether the cause of the stain was repaired or not.
  
• Electrical safety violations
  Electrical safety violations include amateur wiring repairs, ungrounded outlets, reverse wiring, poorly terminated junction boxes and a myriad of other code violations.
• Dryrot
  Rotted wood is common where portions of a house remain wet for long periods. Exterior locations include trim, eaves, decks and fence posts. Problems also occur on the interiors of homes where water is used frequently.
• General Code violations
  Such violations are common where additions and alterations are built without the proper permits. Violations can include room additions, fencing, decks and carports.
• Water heater code compliancy
  The code requirements for water heaters have changed within the past several years in most areas. Violations include inadequate strapping, substandard overflow piping, faulty gas lines and unsafe exhaust lines.
• Unsafe Fireplaces and chimneys
  Whether the problem is the condition of the structure or fire compliances on the interior of the chimney, typically the problems are created by poor maintenance.
• Drainage
  Inadequate ground drainage is often the cause of water issues in and around foundations. Poor drainage is one of the most important problems to resolve.
• Gas Furnaces
  Gas Furnaces have problems ranging from dirty filters to faulty combustion. Problems which can be caused by improper installation or maintenance of a gas furnace can lead to catastrophic problems.
• Fire Code Violations
  Faulty firewalls are common in garages. Violations include, doors not fire rated, drywall that is too thin, exposed wood framing and attics.

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Other Items to Look for:

• Siding
  Many homes in the Pacific NW have been sided with what is referred to as "manmade" or "composite siding". Many of these products have not been able to hold up in the Pacific NW due to the weather and moisture conditions.
  
  At the forefront of siding problems in the Pacific NW is a product called "Louisiana Pacific" or "LP" Siding. There was a class action suit filed against the Louisiana Pacific siding, covering individuals who installed the product prior to January 1, 1996.
  
  Louisiana Pacific sold two basic types of LP, Inner Seal, siding, "Lap" or horizontal siding and LP Panel Siding. Many people refer to the paneled siding as T1-11, however T1-11 is a true plywood siding and it is made quite differently from the LP (Inner Seal) Siding.
  
  Most siding companies pull off the entire LP lap product and install new hardi-plank, vinyl or cedar. However, some siding companies re-side over the LP panel siding instead of pulling the panel material off. This process can have cost benefits; but, prior to siding over the panels you should look to see how much damage there is to the panels.
  
  
• Omni-Board
  Omni Board is another product that people in the Pacific NW are having problems with. The Omni-Board product is very similar to the Louisiana Pacific product in that it is a type of "chip board" product.
  
  It is important to note that there is not a class action suit on the Omni-Board product. As it turns out, the company is handling the claims under their warranty program. You may call the Omni-Board claim line at 1-800-323-4591. It should only take you from 3 months to 6 months for Omni-board to settle your claim. Apparently, dealing with Omni-Board is much easier than with Louisiana Pacific at this time.
  
  
• Masonite
  Masonite Hard Board - (Masonite) - did have a class action suit filed. The hard board siding was not used a great deal in the Pacific Northwest but you do find it from time to time. Most of the Masonite hard board siding came in panel form. On expensive homes you might find the Masonite "clad board". This is where Masonite covered the hard board siding with "stucco" appearing material. This material was used on houses where people wanted to have a "Tudor" looking home. If you have Masonite Hard Board siding you may call their claim line at 1-800-330-2722.
  
  
• Georgia Pacific
  Georgia Pacific Corporation recently settled a class action suit regarding their Jarratt Lap Siding and Catawba Siding. Catawba was used a great deal in the Pacific NW when Louisiana Pacific started having problems with their siding.You may call the Georgia Pacific corporation claims line at 1-888-882-5246.
  
  For additional information regarding siding issues, please visit pnwhousing.com. Their site has comprehensive information on these subjects and they have people on staff who are trained on the particulars.
  
  Whether it is siding, the roof or dry rot pay special attention to whom you contract to inspect your home, what products have been used and the details brought to your attention in the inspection reports. The list can be long or short, either way be prepared and have your real estate agent support you when you choose your inspector and especially if you choose to negotiate repairs.
  
  *Note: I have added a section to this resource guide which includes all major building products which should be taken into special consideration when purchasing a home.

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How to Choose a Home Inspector
The best advice is to ask your real estate agent for a couple of referrals. Your agent should know which inspectors do a thorough job, for an appropriate price in line with the service you should expect.

I have a handful of Home Inspectors here in the Portland area I have worked with on multiple transactions;  I refer to my clients to these.  I also have a handful I would not refer.

Things to consider if you want to find an inspector without help:

• What professional affiliations does the inspector have?
  In most states, the only home inspector standards are those enacted by professional associations such as the American Society of Home Inspectors (ASHI), the National Association of Home Inspectors (NAHI), and similar state organizations. Membership in these associations requires adherence to strict standards of practice and participation in ongoing education.
• How many inspections has the inspector conducted?
  Do they allow prospective clients to ask questions of past client referrals. The average apprenticeship for a home inspector is approximately 500-1000 inspections.
• Does the inspector have Errors & Omissions Insurance?
  A critical aspect of professional accountability is insurance for a faulty inspection. Undiscovered defects can range from minor maintenance problems to structural failure; from leaking faucets to major fire hazards. Inspectors who take their business seriously carry insurance for these untimely mistakes. There are two types of Errors and Omissions insurance for Home Inspectors. The best of these is a "per occurrence" policy, because coverage remains in effect even after the inspector goes out of business. The other type is called claims made. This can be effective on the date of inspection but invalid when it's time to file a claim.
• Building Code Certification.
  To ensure your inspector is knowledgeable of building codes ask him or her if they have building code certification.
• Ask for a Sample Report
  The proof is in the product: So request a copy of a previous report. The best format should be detailed, comprehensive, and easily interpreted, making a clear distinction between defective building conditions and "boiler plate" verbiage. I especially appreciate those inspectors who now place digital photographs with notes next to each item. This is an example of a service which is helpful but certainly not offered by all inspectors.
  
• Let the Choice Be Yours
  When choosing a home inspector, don't rely on others. The final selection should be your own.
  
• Avoid Price Shopping
  Inspection fees vary widely. The price of a quality inspection is typically between $250 and $300 for an average size home. A home is the most expensive commodity you are likely to purchase in a lifetime. One defect missed by your inspector could cost 100 times what you save with a bargain inspection. The best method of price shopping is to shop for quality.

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Negotiating Your Contract
The hardest part of buying a home is negotiating the contract. It is difficult because there are so many details that must be discussed and covered. Contracts cover a number of things including: the purchase price, an expiration date and time of the offer, any contingencies and any other terms which must be met prior to the contract being closed. Once the contract offer is written and submitted to the sellers, negotiations may take place. Negotiations with representation by a real estate agent can save you thousands of dollars if your agent is a strong negotiator and is thinking in your best interest. It is important to note that if negotiations begin it is imperative that you make yourself available to your real estate agent in case you need to react quickly to counteroffers or resubmit an offer given new information.

Things to consider when deciding to negotiate for Repairs:

• Ask yourself if you would still buy the house if the seller refused to make repairs?
• If the sellers refuse your request, will you jeopardize losing the house and/or will you still want it?
• Have you identified how much the costs of the repairs would be? This is important for several reasons.
• If you decide to request that the seller make repairs, having an idea of the cost you may show good faith to the sellers who might otherwise not approve of the work with costs being unaccounted for.
• If you decide to request a monetary credit in lieu of the repairs, having identified the costs up front allows you to justify your request.
• Getting costs for repairs prior to asking for repairs or credits expedites the situation in many cases. In some cases the seller may want to get quotes from contractors of their choosing, in some cases they may go with what you have provided.
• Are you requesting repairs or changes which may be insulting to the sellers?
  It is always important to consider how the other party in a transaction feels. Many people have significant emotional attachments to their homes and even remarking about the smallest details can impact the sellers’ willingness to negotiate or even sell the home.
• Are you requesting repairs you wouldn’t do if already an owner of the home?
  Don’t ask for something that you yourself wouldn’t do. Home appraisal (“home appraising for no less than purchase price”)

Home Appraisals
Home appraisals are conducted on behalf of the lender. The amount of the home loan should approach the sale price minus the down payment. A lender is not accustomed to loaning a buyer money in excess of what a property is worth. An appraisal is conducted by a licensed appraiser typically of the lender’s choosing. The appraiser takes many things into account regarding the property including the amount being offered, recent or active home sales in the immediate area, the condition and assets of the home.

The Sale of the Buyer’s Current Property
Many times a buyer finds a home they want to purchase but needs the proceeds (money) from the sale of their current home to pay for the new home. If the buyer decides to make an offer it needs to be contingent upon his or her current home selling prior so that the proceeds of that sale are made available to purchase the new home.

Seller Making X, Y and Z Repairs
Typically the negotiation of repairs occurs after the inspection. Regardless, repairs are very typical contingencies of a sale. Upon agreement between a buyer and a seller of what is to be repaired, those repairs are typically requested to be completed by a licensed, bonded contractor. As a buyer’s representative I always make sure to state contractually, that the repairs are to be completed by a licensed, bonded contractor. However, if the repairs are something the homeowners are capable of fixing themselves and have requested the authority to conduct the repairs themselves then the language is not applicable if agreed to by both parties.

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Many times it is important that the repairs done by the seller and their contractors be re-inspected prior to closing. The earnest money contract has a section which states this option, allowing the buyer to request or waive a re-inspection of the property and repairs.

I always attend the inspection and re-inspections of my clients’ purchases in order to provide reference to the contract agreements and moral support. You should expect the same from your Real Estate Agent.

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After an offer is accepted all the contingencies related to that offer must be met to move forward with the transaction. The major contingencies are related to home inspections, financing a loan related to the home, an appraisal of the home, any repairs that need to be made to the home, a possible sale of the buyer’s current property, etc. Having a real estate agent which sets the most effective contingencies for the buyer, protecting them and managing their contingencies each step of the way is key to a smooth, successful transaction.

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Closing on the contract to purchase your new home should be one of the most memorable experiences of your life. It should be a smooth day, so you need to make sure that you have taken care of all the required tasks leading up to the closing. First and foremost, be sure that all contingencies have been cleared from the contract or dealt with appropriately. Your mortgage should also be completed. Ask your lender for a checklist of steps to closing and be sure to complete each one.

The actual closing will be held at your Title Insurance company or lender's office. You will be reviewing document after document and you should expect your Real Estate Agent to be there with you to help you with any of the questions you may have. The entire process may take up to an hour, but being well-informed prior to the closing will help to speed up the process. Preparing for the closing will be done by your lender and your Real Estate Agent. The one thing that you should concern yourself with is the terms of the contract. Have they been met to your satisfaction?

At the closing table you will pay closing fees, a recording fee, and the fees associated with any title work that has been done. You will incur the costs associated with your loan. Each lender will differ in fees, but you can expect to pay origination fees, tax service fees, appraisal costs, private mortgage insurance premiums (if applicable), a loan processing fee and any points attached to the mortgage. You will also incur any costs for inspections performed for the lender. I support and advise my clients on what financial assumptions and considerations they should be cognizant of if asked.

Knowing what to expect financially will help make the process smooth and comfortable. Once you have signed all of the documents, the loan has funded and the title work has been recorded, you will take possession of the property and ownership will be transferred.

Congratulations, you now own the home!

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