The buyers have finally found THE house, the sellers have been presented with a number they are happy with, and both parties have signed on the offer contract’s dotted line, but the race to closing has only just begun. Before the title can officially pass hands, there are some hurdles that both parties need to overcome. It’s unsettling to think about everything that “could” go wrong before closing, but it’s important to know that homes are rarely sold without some sort of hitch. Realizing this early can help you breathe a little easier later on.
Many of the “hurdles” that need to be overcome in the closing process occur within North Carolina’s Due Diligence Period, a timeframe agreed upon by buyer and seller, in which the buyer decides to proceed or not with the purchase of the home without fear of losing their earnest money. This includes conducting all inspections, reviewing any HOA rules and regulations, conducting a property survey (if needed), completing the appraisal (by buyer or bank), obtaining insurance, completing the title search, and getting full loan approval.
Here is a brief description of each hurdle:
1. Inspections
As soon as the contract is signed, the buyer’s agent or buyers will arrange for a home and pest inspection. This will reveal any major defects, damages, and infestations (termites) that could affect the integrity of the home. Depending on the results, other inspections may follow, like a structural inspection if cracks in the foundation are discovered. The buyers will then request repairs to be made (if not predetermined to be an “as-is” property), there will be some negotiating, and both parties may or may not come to an agreement. If the seller refuses to make some or all of the repairs, and the buyers determine them too costly to take care of themselves, the contract will be terminated.
2. HOA Rules
If the home is located in a community with a Homeowners Association, the buyers will want to review the association’s restrictive covenants (rules and regulations). This is a step that can be easily taken care of prior to making an offer on a home, but the buyers may wait until the Due Diligence Period to do so. HOAs often create regulations limiting what people can park on their property (boats and RVs for instance), if owners can rent out their home, what type of improvements can be made, etc. All can affect how a property is used and may not be suitable for the buyer.
3. Property Survey
If property lines are unclear or the new buyers want to make sure everything about the property was done legally, the buyers may want a property survey conducted. Any issues concerning how improvements were made to the property, easements that were agreed upon, competing boundary lines, etc. may prove too much of a headache to the buyers and they may terminate the contract.
4. Appraisal
Usually the bank will order the appraisal, but if it is a cash purchase, the buyer may want to order their own appraisal. This will give the bank (or owner) a value of the home to protect its interest in the home. If the appraisal comes back lower than what the buyer wants to pay for the home, the bank will not give the money for the purchase. The seller will either have to lower the selling price or the buyer will have to make up the difference. If neither option works, the contract will be terminated.
5. Insurance
If major damage has ever occurred to the house, like water damage or fire, it will show up on insurance records and the home may not be insurable. If that’s the case, the home cannot be bought unless it’s an all-cash deal, because lenders require there to be insurance on the home. Depending on the circumstances of the offer, the purchase may or may not be completed.
6. Title Search / Insurance
Prior to closing, the attorney will do a title search on the property to make sure there aren’t any “clouds on the title” a.k.a. documents, claims, unreleased liens, and encumbrances on the title that could prevent the transfer of title to the new owners. Any issues discovered must be cleared before closing. Purchasing Title Insurance will then protect new owners from future claims on the property.
7. Loan Approval
Prior to making an offer on a property, buyers should get preapproval from their loan officer to be sure they can qualify for a loan. If they haven’t, they need to do so during the Due Diligence Period. If they have already been pre-approved, their credit will be checked one last time before closing. As long as they haven’t made any huge purchases since they were preapproved, haven’t co-signed any loans, or loss a source of income, they shouldn’t have any issues finalizing the loan; however, underwriting of a loan can take a few weeks, so it’s important to consider that when deciding on the length of the Due Diligence Period.
This last hurdle doesn’t refer to all deals, but is important to know…
8. Bank Approval (Short Sales)
If the home is a short sale (being sold for less than owed on the loan), it requires approval from the bank. This can be a lengthy process, because it requires additional paperwork from both parties and an agreement between all financial parties involved, including investors attached to the bank and the mortgage insurance company (if there is one). Recently, there have been some improvements in the way short sales are being handled to help shorten the wait for bank approval, but it is still predicted to take a few months to for approvals to be finalized.
A good Realtor can help you smoothly overcome all of these hurdles. We have extensive experience in the local real estate market and with short sales. If you’re looking to buy or sell a home in the Wilmington area, give The Cameron Team a call at 910.202.2546 or send us a message through our Contact page.
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