What Happens Once Your House Goes Under Contract?
You hired a Realtor, prepared your property for market, kept your house in immaculate condition for showings, found an interested and qualified buyer, and you finally have a ratified (signed by buyer and seller) contract. Nothing else to do, right? On the contrary, though you’re nearing a sale, there is now a closing process, which should be managed carefully by your Realtor or a qualified member of his/her team. Considering the serious legal implications associated with such a large transaction, you’ll definitely want assistance from someone with plenty of experience in home sales.
On the Multiple Listing Service (MLS), the status of your property will change from “active” to “under contract” or “pending”. This lets the public know that you’ve accepted an offer, but the deal is not complete. Your home will not have a “sold” status on the MLS until after settlement. The sign in your front yard will also indicate “under contract”.
In the DC metro area, settlement (another term for closing) generally happens within 30-45 days after the contract is signed. During this period, information is exchanged between various parties. For sellers, it’s mostly a time of waiting (anxiously, no doubt) and packing while buyers conduct the inspections agreed to in your contract, the lender processes the loan application, and the title company ensures that anyone with claims to the property receives their portion of the proceeds when the deed is transferred to the new owners.
All contract contingencies have tight deadlines. Your agent should provide you with a clear schedule and keep in close contact with all parties to ensure the deadlines are met.
The home inspection is a milestone in this process. Inspections are generally paid for by the buyers and they reveal things about the house that can’t be seen with the naked eye. Therefore, once the buyers have the results, they may ask you to repair or replace items.
Your agent will guide you regarding what to fix (usually anything that addresses a safety issue) and when to counter-offer. As with the sale price, you can negotiate inspection results.
Another milestone is the home appraisal, which is ordered by the lending institution to ensure that the property’s value is commensurate with the amount of money they are giving to the borrower. Since the home is used as collateral for the mortgage loan, the bank wants to make sure they can recoup the money if the borrower defaults.
Once in a blue moon (about five percent of the time, according to the National Association of Realtors), buyers will back out of the contract before closing, usually due to issues with the home inspection or with financing. When the buyers submitted their offer, they also provided an earnest money deposit (typically one to ten percent of the purchase price), which is kept in an escrow account until closing. Depending on how your contract is worded, they may be entitled to some or all of their deposit back. 77% of contracts include contingencies, which legally allow for buyers to back out in certain circumstances and not lose any money. This is why it’s crucial to understand the contingencies before you sign the contract. If a buyer cancels the contract simply due to “cold feet,” you as the seller are entitled to keep their earnest money deposit.
Once all contingencies are met and the lender has finished processing the loan, you will receive a loan commitment letter, which means the buyers have been approved for the mortgage. Now you’re 95% of the way there! At this point, you can:
- Call your utility companies to take your name off the accounts as of the closing date (make sure they don’t shut anything off on that date though, as the new owners will need lights and running water at the final walkthrough)
- Contact the post office to have your mail forwarded and notify necessary parties of your address change
- Schedule movers
- Call homeowner’s insurance to cancel your policy on that property
- Gather all instruction manuals, warranties, contractor receipts, house keys, garage remotes, etc. in one place for the new owners. You might even create a document for them that explains certain things about the property they need to know, like the alarm code or how to work the home theater.
When settlement day arrives, you may or may not have to show up at the title office (ask your agent). Unless you’ve negotiated a rent-back in your contract, allowing you more time in the property after closing, you should have vacated by this date. The buyers will do a final walkthrough of the property to make sure it’s in the condition agreed to in the contract. You and the buyers will sit at the settlement table to sign documents, pay off your mortgage, and receive any proceeds from the sale. You’ll hand over your keys and ownership of the property will have officially changed hands. Congratulations!
The last item on your to-do list is to visit Zillow or Google and leave a review of your agent for future home buyers and sellers.