Here's the knitty-gritty lowdown on what happens once we have a fully signed Purchase Agreement. Typically, it will take 30-45 days to close. But know that along the way there can be bumps in the road that cause delays: perhaps something unexpected came up during the inspection, or the appraisal takes longer than expected, or the buyers financing falls through---I'll be here to help you navigate any twists & turns in the road throughout the process!

If the Inspection Contingency is in place, the buyer has up to 10 business days for any & all inspections, renegotiations, or to terminate the contract & get their deposit back. The buyer needs full access to all areas of the house during the inspection--likely 2-3 hours.​

The Buyers lender will require an appraisal of the property to determine if the purchase price that has been offered is market value. This will likely be scheduled for around two weeks from today. The appraiser will schedule an appointment with me & I will be there to let them in & I will be there for the duration of their inspection which shouldn't take longer than 15 minutes. The appraiser will need access to all rooms including the attic & basement. The appraiser will be taking pictures of all rooms. It will take 7-10 days or more for the buyer to receive the appraisal report. 

Schedule the Smoke Detector Inspection: As required by the lender, the fire marshall will have to inspect the property to make sure that the smoke & carbon detectors are up to current code. I will instruct you on this process & what you need to do.

Buyers satisfaction of the Mortgage Contingency: if the buyer is securing a loan for the property they will need a mortgage. Once the Underwriter for the lender has reviewed all of their financial documents, taxes, employment history & verification of current employment, as well as the Appraisal Report, they will determine whether or not they can approve the Loan. If their application for the loan is approved they will be issued a Mortgage Commitment--this is usually a week and a half to two weeks prior to our target Closing Date. If their loan is denied then the contract will be terminated & we will find another buyer. If the loan is approved the attorneys will work on scheduling the closing.

Info to Submit to the Attorney prior to closing (typically the week of the closing): 

• Mortgage statement so that they can get the payoff info
• Water meter reading (take a photo of your water meter with the numbers visible)
• Oil tank reading (you’ll need an invoice from a company documenting how much oil is in the tank & current market value so that the buyer will reimburse you)
• Smoke Detector Certificate 

 
The Closing: the actual closing will take place at your Attorney’s office or at the Buyers Attorney's office.       You may or may not be there at the same time as the buyers. Your portion of the closing is pretty quick, it will likely only take 20-30 minutes. You should receive the final closing documents to review the day before the closing however, sometimes they’re unable to get you the document to review until the last minute. You should have a good estimate of your Net Proceeds early on in the process--the attorney & I can help you with this. Once the buyer has signed their documents & the updated deed has been recorded the funds will be transferred into your account. Congrats on your closing!!

​Wrap up: a day or two after the closing I recommend you call all of your utility providers to let them know that you have sold the house, including your homeowners insurance provider. 

You've decided to sell your home & you want to know, after all the expenses, how much will you be able to put into your bank account--or into another property--once you've sold the property? And what are the expenses involved? You'll want to work with your Attorney to get to the exact amount but here's a general formula that you can use to figure out the ballpark number:

1) Sale Price of your home: if you haven't sold your home yet I'd recommend you follow the recommendation of your Realtor & use a conservative amount that you think you will sell your home for rather than the number that you're hoping for. You want to go into this real estate transaction knowing the minimum amount that you're willing to sell your home for. Whether or not you share that info with your agent is up to you but I think it's helpful to be upfront to ensure that your number is realistic & that you're on the same page. If you're working with the right agent you can trust that they will work in your best interest to get you top dollar.

2) Principal Balance of your Mortgage: look at your most recent mortgage statement & find the principal balance. You'll subtract this number from the Sale Price. Note that you need to add in one additional mortgage payment---mortgages aren't like rent which is due at the 1st of the month. Your September 1 payment pays for August. 

3) Real Estate Commission: you will negotiate the real estate commission with your Realtor prior to listing your property. Be sure to find out if the commission is based upon the Net Sale or Gross Sale. What's the difference? Net Sale would be based upon the agreed upon contract purchase price minus any seller concessions. For example, if the contract purchase price is $300k but the buyer has requested $5k towards closing costs, the commission would be based upon your Net amount which in this case would be $295k. A commission based upon Gross Sale price would be based upon $300k

4) Attorney Fee: not all states require Sellers to have an attorney represent a Seller for a closing but Rhode Island, Massachusetts, and CT do.  You should work with an attorney that specializes in Real Estate Law. Your attorney will do the following: review any legal documents that are prepared on your behalf & answer any questions that you have, prepare the Deed that will be transferred to the Buyer; order your mortgage payoff; if there are any Title issues that arise from the buyers title search or any liens on the property, your attorney will work to resolve these issues; your attorney will review the settlement statement that has been prepared by the Buyers Attorney prior to reviewing it with you to make surer there aren't any errors. Attorney fees are typically $800-1500

5) Deed Transfer Tax: also known as tax stamps or realty transfer tax. Typically paid by the seller, the current rate in Rhode Island is $4.60 per $1000. Example: sale price $300k the total transfer tax amount would be $1380 

6) Real Estate Taxes & Prorations: property taxes in Rhode Island are typically paid quarterly, depending upon your town. Depending upon where you land in the tax cycle you may owe taxes for a portion that the buyer will be responsible for paying & therefore you will be responsible for paying those at the closing, this will be deducted from your settlement sheet. Example: If you close May 31 and you've paid for taxes for the first quarter of Jan-April that means you will also be responsible for the month of May. You will also be responsible for water & sewer bills up until the day that you close, your attorney will be in touch with the providers to settle the final bill. Any money owed will be calculated on the settlement sheet.

7) Buyer Concession or Credit: if you have agreed to a Buyer closing cost credit, or a credit amount in lieu of a home repair, you'll need to make sure that you subtract this from the net amount. Prior to listing you may want to conservatively plan for $2-5k depending upon the condition of your home.

Would you like a copy of my Simple Seller Net spread sheet? I'm happy to share--send me a message with your request through email & I will send it to you! I'm happy to help!

What is an Appraisal?
One of the contingencies in a real estate purchase contract when the buyer is securing a mortgage, is that the property must appraise for the purchase price. A home appraisal is a report provided by a licensed professional required by the lender to ensure that the purchase price is the fair market value of the property you’re buying.
Appraisal reports usually run around $500-800 for a single-family house and a little bit more for a multifamily property--the report is paid for & belongs to the Buyer. The lender will order the appraisal, using an independent third-party professional who has no interest in whether or not the transaction goes through. 
How an Appraisal WorksThe appraiser will visit the property and walk through the inside and outside, taking measurements, photos, and notes--the appraiser needs access to every room. It won’t take long, about 15 minutes. After the on-site review, the appraiser will look at comparable properties (aka “comps”) & write a professional report indicating the appraised value of the property.
Some of the key factors an appraiser looks for include:

• Age of the property
• Construction details such as wood vs. brick
• Date of major updating or remodeling
• Square footage: particularly the living area
• Number of bedrooms and bathrooms
• Amenities such as an attached garage, backyard deck, or swimming pool
• Deferred maintenance that reduces current property value (ex older roof)
• Lot size and configuration
• Location factors can impact value, such as being next to a greenbelt vs. backing to a busy road
• Neighborhood characteristics such parks and school ratings
• Current trends in the local housing market
• Comparable sales of similar properties within the last few months

Comparable homes sold in the most recent 90 days are hugely important in the sales comparison approach. Homes sold over six months ago are less relevant.
Whether you’re buying, selling, or refinancing, a home appraisal that comes in too low could put the entire transaction in jeopardy.

What happens if the appraisal is lower than the purchase price?
The possibility of a low appraisal is why home purchase contracts are often written with an appraisal contingency. Should the home fail to appraise for its contracted purchase price, the contingency clause allows buyers to re-evaluate &, potentially, walk away without losing the deposit. FHA loans require this contingency in any purchases financed with FHA mortgages.
As a home buyer, it’s risky to waive your appraisal contingency as you may be on the hook to make up the shortfall or forfeit your deposit if you walk away. You need to talk to your Realtor & your mortgage lender to make sure that you fully understand your options.
​
Here’s an example:

• Agreed upon purchase price of $200,000 for a home
• Buyer is using an FHA loan; the maximum loan amount would be $193,000 (3.5% minimum down payment)
• The appraiser values the property home at $190,000 which means there is a shortfall or gap in the appraised value vs. the purchase price
• The buyers maximum mortgage size drops to $183,350 — ( again, 3.5% down payment is required based upon 190k)
• With the reduced loan amount, the buyer is now $9,650 short of the agreed-upon purchase price of 200,000 

Unless the seller agrees to lower the price to match the appraised value, the buyer will have to increase their down payment to get the same mortgage & interest rate. Rather than paying $7,000 down they would need to pay $16,650 down to buy the same $200,000 house because they would have to pay the difference in the appraisal shortfall.
A buyer that plans to put 20% down on a house may have the option to increase the loan amount in order to make up an appraisal shortfall. Instead of 80% LTV (loan to value), you could opt to put 10% down instead---this may have other implications such as PMI or a different interest rate so again, it’s important that you talk to your lender BEFORE you jump into the home buying process & talk through these options so that you can make the best possible offer in a competitive market.

Options for a low appraisal
When a home appraises for less than its purchase price, there are a few potential options:

• If the Buyer has waived the mortgage then the appraisal is irrelevant in relation to the Seller & will not impact the purchase price
• If the Buyer has offered to pay any of the gap/shortfall then that will partially determine the next options (ex. If there’s a $5k appraisal gap coverage then using the same example as previous the seller would reduce the purchase price to $195k because the buyer agreed to cover a $5k shortfall
• Seller and buyer renegotiate a new, lower home sale price
• Buyer increases the down payment to meet new down payment minimums
• Seller and buyer cancel the home purchase contract 
• Buyer or seller requests an appraisal rebuttal

How to rebut or appeal your appraisal
The home buyer, or seller in some cases, can request an appraisal rebuttal or challenge. This is a formal process in which the buyer’s lender submits a request for the appraiser to re-examine the appraised price of the home. Your Realtor can submit additional comparable homes to try & get the appraiser to reconsider the value.

There are a few things to keep in mind:
First, the Lender will have to submit the proposed comps to the underwriter & if the underwriter does not think that they are relevant comps they will decline the request to refute the appraisal. Second, it is crucial to note that the comparable homes MUST be very similar---similar style, condition, location, etc. You can’t compare a Cape to a Contemporary for example, or a 1200 square foot home to one that is 2400 square feet, or one that has recent updates with one that is not. Third, even if you make it past the Underwriter, these rebuttals often have little or no effect on the appraisers report except to take up time & prolong the stress for all parties. The appraiser will submit a rebuttal response, stating that value has been changed based on new evidence, or that it wasn’t changed and why. It's not impossible & if the appraised value comes in significantly low it's certainly worth the effort but you should know that the chances are very slim that the appraisal will reconsider their original report.

The good news for sellers is that many buyers in today’s market seem to have the cash available to either waive the appraisal contingency or offer to pay a specified amount that they’re willing to cover in the event that there’s a shortfall. This is an important strategy that your Realtor should work to negotiate when determining which offer is the most competitive. Likewise, for a buyer, if you have the funds available, offering a specific amount of funds that you can offer in the event of an appraisal shortfall may be the deciding factor between you & another offer in a multiple offer situation.

​For the most part there are two main loan options: Conventional or FHA.

Conventional loans: There are conventional loan options for single family properties with down payments as low as 3% or 5% depending upon what you qualify for. In the past, a conventional loan was typically 20% but there are now a lot more options available to buyers which makes home buying a much more viable option for a lot of people! Conventional loans require higher credit scores & lower debt to income ratios. Most lenders can get a conventional loan closed within 30 days following a signed Purchase & Sales Agreement (contract to purchase a home). Note that if you're buying a multi family property, a conventional loan will require 20-25% down payment.

FHA (Federal Housing Authority): these are government backed loans with a minimum down payment of 3.5% for single family or multi family properties  (up to 4 units) that will be owner occupied (key phrase--you must plan to live in the house as your primary residence for at least one year). 

FHA loans are available to anyone--not just first time buyers-- and are easier for people to qualify for because they allow for lower credit scores and higher debt to income ratios. That's the plus side. The downside is that you have to pay PMI (Private Mortgage Insurance) for the life of the loan. That cost is wrapped into the loan but important to understand. That said, it is deductible on your taxes & PMI is relatively low. The amount of PMI you pay will be dictated by your credit score.
 
Note that FHA loans won't work for every property---FHA approved appraisers will inspect the property as required by your lender & they'll flag things such as peeling paint, asbestos wrapped pipes, old wiring like Knob & Tube, & a few other issues that I'll be able to identify as we check out properties. If the seller won't remediate those issues then you won't be able to get the loan. Are there ways around this? Yes. Case by case & I'll be able to help you identify what properties just won't work & which ones will (yes, there is a renovation loan called a 203k but that's too much info for this post!). There aren't many condos that qualify for FHA loans in our area. 

This is a quick primer & since I'm not a mortgage expert there is definitely more info that you should know. The lender(s) I will connect you to will help you to understand your financing options & determine which loan package is best for you. A lender will want you to submit all of your information to them & then they will go over your options with you--not the other way around. 
What will they ask for in order to give you a preapproval: past two years tax returns, last two or three months bank statements for all accounts, past two or three pay stubs, & they'll run a soft credit pull. 

This is a lot of info & a lot to take in--I do my best to provide my clients with different ways to learn about the home buying process so that they feel fully informed & empowered to make ask the right questions + make smart decisions! I'm here to help & to answer questions so take it one step at a time & don't hesitate to reach out to me with additional questions! 
​Check out my video below to learn about the costs you should be saving--you'll need more than just your down payment.