Once the contract is signed, the buyer begins their due diligence of the property. The buyer will likely have the home professionally inspected. They will have their attorney begin searching your title to the property. Finally, they will pursue their financing for the property.
• Unfortunately for most sellers the buyer's due diligence period amounts to a "wait and see" for the seller. The seller is waiting to see if the inspection reveals any issues. They are waiting to see if the land records or municipal offices reveal any issues regarding title. And they are waiting to see if the property will appraise for the value of the purchase price and whether the buyer can qualify for their loan.
• Many sellers experience a helpless feeling during this period. There is little comfort to be provided other than to say most homes sell once the contract is signed. Issues seem to arise on every transaction, but for the most part the issues are minor and can be resolved rather easily by one or more of the parties involved in the transaction (buyer, seller, buyer's attorney, seller's attorney, real estate agents or the lender).
Here are some of the more common issues that arise between the signing of the contract and the closing:
- Inspection Items - This is the most common issue that arises after the contract is signed between a buyer and seller. The home inspector's report reveals either maintenance concerns, safety concerns, code violations or all three. For code violations, there is usually little dispute between the parties that these items will be rectified prior to closing. It is the other two areas where disagreements most often occur.
Safety issues are items noted in the home inspector's report that the inspector believes to be hazardous but do not violate some regulation, law or code. The parties can usually determine by common sense whether the seller should be responsible for addressing safety items or if it is reasonable to expect the buyer to address them after the closing. However, there are times where neither party believes they should be responsible for addressing the issue. Obviously there are several ways to work things out. The parties could agree to split the cost of addressing the item. The seller could have their own inspection performed and if the seller's inspector thinks the issue should be the seller's responsibility then the seller could address it. The parties could agree to put money aside at the closing and should money be leftover after the issue is addressed then that money would be given to the seller. Finally, if no agreement can be reached then the parties could terminate the transaction and return the deposit to the buyer.
Maintenance concerns in a home inspector's report are usually the most contentious issues between the parties. Unless the home is brand new, the buyer could not expect the home to be maintenance free. The real question is what level of maintenance is reasonable for the buyer to expect given the age of the home, purchase price and other terms of the transaction. This analysis will need to be done on a case by case basis as the issues that could arise are too extensive to address here. The most important thing to remember is that if the parties act reasonably they should be able to reach an agreement as to these issues.
- Financing Issues - The most common issue these days for financing is that the property does not appraise at the purchase price. Appraisers have become very conservative since the "mortgage meltdown" of 2007-2008. The best way to avoid having issues with the appraiser is to have your home in the best possible condition when they come. If possible meet with the appraiser and try to point out aspects of the home that you believe add value. Ultimately appraising is an art and not a science so leaving the appraiser with a positive impression can actually impact the final appraised value.
- Title Issues - In most cases when there are problems with the seller's title, the issues are minor and can be resolved quickly. However, if a more serious issue arises, the seller should look back to their closing documents. It is likely that an attorney issued a "title opinion" at the time the seller closed. It is also likely that the owner purchased "title insurance" when they purchased the home. The seller can look to either or both to help resolve the current issue.
- Repairs Not Complete - If an agreed upon repair is not completed at the time of closing, you can delay the closing. However, it is probably easier, depending upon the scope of the repair, to have the closing attorney withhold a reasonable amount of money from the seller until the repair is completed.