Some Important Real Estate Contract Info to Keep in Mind
Just the three words, real estate contract, are enough to give some of our clients hives and nervous sweats, but we’re not here to do that to you. And we’re not here to discuss legal jargon or put you to sleep reading this blog. We simply want to highlight five dates, happenings, moments, whatever you want to call them, that are part of a real estate contract that are important to keep top of mind.
After you have been pre-approved for your loan, you’ve selected your real estate agent (cough, preferably Dani Beyer Real Estate, cough, if you’re in the Kansas City area, cough), done the full house search and found the one, Marv, the silver tuna (it’s Christmas movie season – give us a break), you’re about to enter a contract. Don’t worry – there are still a few outs for you if everything isn’t as perfect as you’d hoped. Stay with us for a bit as we help you understand some of the main details to keep in mind with your contract.
Number 1 – Earnest Money Deposit
The Earnest Money Deposit (EMD) is one of the first actions you’ll take, and it shows you’re serious about starting this home buying process. Often called a “good faith deposit,” this shows you’re literally willing to put your money where your mouth is. The amount of the EMD usually varies between 1-5% of the home’s sale price, and the timeline for this deposit is typically within three days of signing the contract.
A third-party escrow account holds onto the money while you walk through the other terms of the contract. Then, at closing, the funds can be returned to the buyer or applied to the down payment or closing costs.
Number 2 – Inspection Period
The inspection timeline is important for many reasons. This is one of your magical ways to back out of the inspection that comes back with too many red flags that the sellers or buyers aren’t willing to fix. You have the right to wipe your hands clean. However, on a more positive note, this is also where you can find some peace of mind about moving forward with the purchase of your home.
The inspection period will vary depending on where you live, but it is usually somewhere between a 7-15 day period where the inspection happens, the results are provided, requests can be negotiated and the buyer has the option to move forward or back out of the purchase.
Number 3 – Appraisal Timeline
Your lender will hire an appraiser to go check out the home you’re intending to purchase and make sure it is worth the correct amount. Unlike the home inspection mentioned above, an appraisal is less in-depth, based more on what you can visibly see along with real estate comps.
The timeline for an appraisal, again, varies depending on the time of year and your location. But on average, an appraisal is scheduled within a couple days of the request, and the report can come back within another couple days, up to a couple weeks, or even a month, at times (which is super rare).
If the appraisal comes back saying that the house isn’t worth the amount you offered to pay, this creates an appraisal gap. This is the other opportunity that a buyer has to back out of a real estate contract. However, if they don’t want to lose the home, there are other routes to take. Read about those in our blog, Covering the Appraisal Gap.
Number 4 – Title Commitment Date
In most real estate transactions, the seller agrees to provide title insurance for the buyer. If you’re not familiar, a title commitment is the title company’s promise to issue a policy of title insurance according to the terms set out in the commitment after closing. Don’t fall asleep. We’ll try layman’s terms. “Essentially…[it is] used to determine that the seller has the right to sell the property, and the buyer will receive all the rights to the property (and the lender can foreclose on the collateral, if necessary down the road.)” (Thank you, Partner ESI)
This has to happen before closing, typically 5-15 days before closing the loan. If you have more questions on this topic, please reach out to our favorite KC lender, Meggan McDonald with Supreme Lending.
Number 5 – Closing Date
This is the date that everyone has been waiting for! The sellers, the buyers, the lenders, the real estate agents…it’s a good day for all involved. It’s the day that people get paid, the day the buyer gets a bit more poor but finally gets to call a house their home. This day is agreed upon at the beginning of a real estate contract, and it’s usually set pretty firm, on average, 30-60 days from contract signing. Some buyers will use a closing date to their advantage for negotiation – which could mean different things depending on the seller’s need: meaning, a longer or shorter closing range.
We hope the breakdown of these five important real estate contract dates has brought clarity to you and not confusion. The good news is, your agent will hold your hand through each step so that you don’t have to carry all this information, dates, details, etc. on your own. Buying a home is already stressful enough. You don’t need to hire an assistant to keep track of all these dates for you. Consider your agent your assistant. (Don’t tell any of our agents we gave you permission to do that). If you are still looking for that trusted real estate agent to walk your home journey with, consider one of the top teams in all of Kansas City to help you out.