You've Got a Buyer! What Next?
Hooray! You’ve found a buyer for your home. You’re done, right?
Not quite. All you have to do now is get yourself—and your home—ready to close, and we’re here to help. Let’s dive in!
When the buyer makes an offer on your home and you accept, the buyer will write you a check for a deposit known as earnest money.
Everyone at some point gets a bit puzzled by earnest money. It comes down to a simple idea: This is money a buyer puts forward that proves they are earnest about their intentions to move forward on the deal.
These funds are held by a Escrow and credited towards the buyers closing costs at closing; on average, buyers pay about 2% to 3% of the offer amount in earnest money.
If the deal goes through, the earnest money becomes part of the buyer’s down payment (or full cash payment). If the deal falls through because you’re unable to meet the buyer’s contingencies (for example with the inspection or appraisal), that money gets returned to the buyer. Usually.
However, if buyers back out just because they randomly change their mind, sellers may get to keep that money for all the hassle. Consider it a hefty consolation prize for having to put your home back on the market.
The seller’s disclosure
As soon as you accept an offer, you will need to supply the buyer with a seller’s disclosure form—basically an itemized list of any problems with the home or surrounding area. But how much do you have to disclose?
It all depends on your state laws. The legal site Nolo.com has a list of disclosure laws for various states, and your real estate agent can also provide you with the requirements for your area. Generally, expect to dish the dirt on:
- Basic information about the home, like the age or utility costs
- Structural problems, like the condition and age of the roof, decks or siding
- Environmental issues, like if the property is located in a flood plain or is on septic
- Known issues, like flooding in the basement, leaky roof, easements, lead paint, etc.
Even if your state doesn’t have strict disclosure requirement rules, you can always disclose more than the minimum, and it may make sense to do so. I always advise sellers to include as much information as possible. No one ever gets sued for over-disclosing!
It sounds counterproductive—after all, you don’t want to scare the buyer away—but withholding information could come back to haunt you.
After all, the new buyer will find out sooner or later, so it’s best to be up front.
The home inspection
Unless you’ve sold the home “as is” (and sometimes even if you have), the buyer will want a home inspection. The inspector’s job is to look for problems like:
- Roof damage
- Structural problems
- Plumbing problems
- Fire hazards like bad wiring or improperly working chimneys
- Major appliance and HVAC issues
Since the buyers hire the inspector, the report will go to them. If they spot anything amiss, trust us, you will hear about it, as it may become a negotiation point you’ll have to work out before you close.
Basically, the buyer may want some repairs done after reviewing the seller’s disclosure form and conducting the inspection. If buyer and seller agree on repairs or in some cases a price modification then said repairs will typically need to be completed and available for re-inspection by buyer prior to closing the sale.
You may be asked to get things repaired, or give the buyers a credit so they can pay for repairs themselves. While fixing it yourself may seem cheaper, it’s faster to offer a credit, so be sure to consider what a delay would cost you.
In todays market it is becoming more common for the seller to hire a home inspector prior to listing the home. This allows sellers the opportunity to repair any issues found by the inspector so they don't have to negotiate with the buyer on repairs. The "Pre-listing inspection" can and should be provided to any buyer as part of the seller disclosure form. In many cases, buyers will make an offer on your home without an inspection contingency if they already have the report in hand. This is great for sellers as the inspection is one of the biggest hurdles to get to closing.
The home appraisal
If the buyers are getting a mortgage, their lender will require and appraisal of the home.
An appraiser is similar to an inspector, in that they come to your home and check it out, top to bottom. Only the purpose is different: Rather than looking for problems and repairs, an appraiser is trying to estimate what your home is worth, so that the lender knows the investment is sound.
To do that, the appraiser will not only size up your home in person but check out the sale prices of comparable houses in your neighborhood (much as a real estate agent would do for you). If the appraiser’s price matches the one your buyers are paying (or even if it’s higher), all is good.
But if the appraisal comes back lower than the asking price, it may become a problem. Typically, lenders won’t loan buyers anything above the appraisal amount. The buyers have two choices: Pay cash for the difference, or negotiate a lower sale price with you. If they choose the latter, you’ve got two choices, too: Accept the lower home price, or walk.
To decide what to do, ask yourself: How easy would it be to find a new buyer? If you were deluged with offers, it may be in your interests to move on, but keep in mind that you might run into the same problem with subsequent appraisals. So unless you’re confident your home is worth more and you’re willing to head back to square one, you may want to take a hit just to keep moving forward.
Up Next: The Home Closing Process for Sellers