In a perfect world, purchasing or selling a home is like a well-rehearsed play. Everyone knows his part and lines, and the closing-which combines the opening and final performances and all those in between-goes off without a hitch.
But tell that to the prospective buyer who learns on the day before the closing that the home inspector neglected to find a wet basement because it hadn’t poured until then. Or, tell it to the seller who learns right before the property is to be transferred that neither his real estate agent nor attorney ordered a title search. Each thought the other was taking care of the matter.
In each case, solutions are available. In the first case, the potential buyer may be able to walk away from the deal, lower the price by the cost of the repair or secure a credit at closing to do the repair later. In the second case, the closing may have to be postponed by a few days until the title is produced and shown to be clear of liens, for example.
Roles can be forgotten or flubbed, however, and by professionals who have successfully handled dozens of residential real estate closings before. There are several reasons why problems have traditionally arisen. There has never been one definitive script followed by all the professionals involved-brokers, attorneys, inspectors, appraisers and lenders.
But potential buyers and sellers can list the key steps in the process, discuss them with all those involved and pencil in who will cover what to eliminate any mishaps.
The wrong lines
This way, players also won’t inadvertently step into each other’s roles and even ad lib inappropriately. “I’ve heard inspectors say, `I wouldn’t buy this house if I were you,’ ” says Stuart Packer, owner of Lincoln Park Associates Ltd., a 10-year-old Chicago inspection company. “Our job is to come in and point out anything that’s not in good working order, not to editorialize and value a neighborhood or its schools. Along the same lines, I’ve overheard Realtors say, `This is a two-year-old furnace’ when I know from the serial number that it’s 20 years old. What am I going to do? Tell someone they’re a liar?”
Lender Sean W. Lowry, a vice president with Pacor Mortgage Corp. in Chicago, says he’s had Realtors press for an OK on a loan to clients who don’t yet have the proper documentation. “They try to jump the gun on us. It’s not up to me, Sean Lowry, but to the company once we have all the papers and numbers in.”
Buyers and sellers need to list (we’ve given a sample below) the major responsibilities of the transaction, from the moment a property is listed (if they’re the seller) or the moment they find the house of their dreams (if they’re the buyer). They can also use that list when they interview prospective agents, attorneys and lenders, suggests Joan Ross, a broker with Kahn Realty in Glencoe. “Make your choice based on what they say they handle and have them stick to it.”
Ross’s firm has a post-sales department that handles the details to be sure they get done. Mitchell Bros. Realtors in Evanston has a closing coordinator to handle such matters.
“Most firms have someone besides the Realtor who’s responsible for following through,” explains Jenny Gilbertson, general manager at Mitchell Bros. She uses a list with separate columns to spell out the different needs of the buyer and seller. She’d notify a buyer about their need for property insurance, for example; she’d coordinate an appraisal with a lender for the seller.
And when in doubt, “It’s up to each buyer or seller to make that extra phone call to their Realtor, attorney or anyone else to check the progress of any part,” says attorney Ed Grabill of the Northbrook law firm of Olson, Grabill & Hoffman. “Communication is the key to a successful transaction.” He adds, “It’s even OK to nag. After all, if they won’t, who will?”
The list
-Listing. A listing is equivalent to publicity, which helps bring in a full house. The bulk of the early responsibility falls on the seller’s Realtor, who makes suggestions to ready the house for showing, says Realtor Richard Druker with Kahn Realty’s Chicago office.
It’s also up to the seller’s agent to gather accurately all the proper information for inclusion in the multiple listing service (MLS) for maximum exposure, adds Barbara DaVee, an agent with Beliard, Gordon & Partners in Chicago.
Some of the typical information included is the amount of taxes most recently paid and the year paid, the asking price, and for a condo or co-op the amount of any assessments and special assessments and maybe the name of the management company, if there is one, and the particular person who manages the property. Any items to be excluded from the sale are also listed
-Attorney’s approval of the contract. Once a sales contract is signed, the curtain goes up and both seller and buyer usually have five to seven days for their attorneys to negotiate and make any changes. The purpose of the attorney’s approval is for form, not to renegotiate the contract in terms of price, terms and possession, Gilbertson says.
-Inspection. The first of two inspections takes place within 10 days after the contract is signed. In most cases, both sides’ Realtors are present to hear the inspector’s verbal report. A written report follows.
If problems are found, brokers for both sides usually negotiate how they’ll be remedied. If the sides can’t agree, attorneys are often called in to settle the matter, says Joseph Cavolick, a senior vice president of Kahn Realty.
A second, pre-closing walk-through usually is held 24 to 48 hours before the closing.
Though it doesn’t occur in the majority of cases, some sellers today also hire home inspectors, but prior to listing their homes in order to prepare them for a quicker sale, says Packer.
-Scheduling of closing. A date is specified in the contract, usually 60 days after the contract is signed, and determined by seller and buyer and possibly their Realtors, Gilbertson says. In most cases, closings cannot take place, however, until the mortgage commitment, title search and new survey are available. With certain types of property and in certain cities or areas, other conditions must be met, such as proof that water bills have been paid-something that the real estate agent usually does, but sometimes is handled by the attorney.
-Mortgage application. The buyer’s agent shepherds future homeowners through this process, helping to find a lender and often pre-qualifying the person to speed along the process, especially if the person is a first-time buyer or in an unusual financial situation, such as a sole proprietor, Cavolick says. But it’s up to the buyer to dig up all the personal financial information and have it ready for the lender.
Adds Lowry of Pacor Mortgage, “You don’t want to waste everyone’s time if the person can’t afford the property in question. Ten to 15 years ago it was rare for potential buyers to have all their financial information ready before they found a house, but now it’s very, very common.”
In most cases, potential buyers have 30 to 45 days to secure a written loan commitment, which should specify the dollar amount to be borrowed, the term, the interest rate and, if floating, what index will be used and any caps on interest rate fluctuations.
Cavolick recommends that buyers not wait passively for an answer from the lender on their loan. “Stay in close touch with their potential lenders,” he says, to be sure they receive all the data and paperwork necessary to make a timely decision. If there’s good news to be shared, a game of telephone usually begins. The lender calls the borrower, who calls their broker, who calls their client’s attorney. Then start the calls to the other side. “Everybody’s excited, yells `We’ve got it,’ and heaves a sigh of relief,” Gilbertson says.
The lender should disclose to the buyer all the costs to obtain a mortgage, including the number and amount of points. It’s the seller’s attorney’s responsibility to prepare the closing statement with costs, including prorations, and to give it to the buyer’s attorney.
-Title and survey. Once a contract is signed, usually the seller’s attorney orders a title company to check the property and prepare a new survey for the buyer in order to be sure there are no tax liens or encroachments. “We usually like to do it if the seller is our client to be sure it gets done and see if any matters need to be cleared up. But, if the seller’s Realtor wants to handle the request, that’s fine, too,” says attorney Grabill. It’s also up to the attorney to relay that information to the real estate agents.
-Appraisal. After the buyer has signed a contract and approached a lender, the lender hires an appraiser, who values the property according to current market conditions, says Lowell Berman, an appraiser with his own Deerfield firm. The purpose is to verify that the house represents a smart loan, Gilbertson says.
“Rarely do buyer and seller, however, know who’s appraising the property, and it’s best if the relationship is kept at arm’s length,” Berman says. “Appraisals are usually good for six months.
-Miscellaneous details. A lot of nitty-gritty details come under this heading, including local transfer stamps. The ordinance of the community where the property is determines who pays this. In Chicago, a seller’s attorney needs to produce proof that the client has paid his or her water bill.
The sale or purchase of a condominium has other requirements. According to Grabill, in Chicago the seller’s agent usually gathers information from the condo association, including: a waiver of right of first refusal to buy a unit (some associations have first dibs on any units put up for sale); a paid assessment letter, certifying that the owner is current on assessment payments; and a certificate of insurance that shows the building is covered. In most Chicago suburbs, the seller’s attorney, however, usually assembles this data. In either case, the information is presented to the lender to help decide whether a buyer qualifies for a loan.
-Closing. Attorneys for both buyer and seller and the lender usually talk a few days before the closing to be sure all paperwork is in hand. They also discuss last-minute figures necessary for the title company to prepare checks (some certified) that will be disbursed to real estate agents, seller, buyer, lawyers and lenders.
Typically, the seller’s attorney or the lender or perhaps both decide the location for the closing. Most often it’s at the lawyer’s or title company’s office.
