The intent of this page is to provide clients with more knowledge and a clearer understanding of how things really work in a Real Estate transaction these days. What follows is a breakdown of the most important steps in a sale, including definitions, common misconceptions, and what we call The Real Deal. The Real Deal explains how these concepts work in actual practice so that sellers have realistic expectations and a good understanding of the sales process before they accept an offer. It is important to keep in mind that The Real Deal reflects how most sales go, but of course, each sale can vary depending on the circumstances.
Definition – A document that outlines the main terms (price, dates/deadlines, deposit amount, etc.) for the purchase between a buyer and seller. It is considered to be a “legally binding” agreement once executed by both parties
Common Misconception – Offer is hand-delivered to the listing agent by the buyer’s agent with a deposit check.
The Real Deal – Offers are usually submitted via email directly to the listing agent by the buyer’s agent. Sellers can accept, reject or make a counter-offer. When both parties reach an agreement on the terms and the offer is executed by the seller, it is emailed directly to the buyer’s agent by the listing agent. Once it is executed by the buyer and seller, it becomes a legally binding contract. Practically speaking the offer is more legally binding to the seller than the buyer if there are contingencies such as a home inspection as outlined below.
Definition – The deposit is also known as “earnest money” and it is usually held in escrow by the buyer's agent's brokerage (Thrive Realty Co. in this case) when received. There are can be two deposits. One is submitted with the offer and one with the Purchase agreement. Most common in Michigan is with the offer.
Common Misconception – Checks are hand-delivered from the buyer’s agent to the listing agent along with the Purchase agreement.
The Real Deal – It is customary for buyer’s agents to gather the deposit once the Purchase agreements are executed by both parties and turned into the brokerage to be held in their escrow account. As explained in our Escrow Policy, if a buyer defaults and there is any dispute over the deposit, a mutually agreeable release must be executed by all parties before any funds can be returned to the buyer or given to the seller.
Definition – A Pre-Approval is a preliminary approval to obtain a mortgage. Buyers who plan to obtain a mortgage should provide this along with their offer.
Common Misconception – Buyers are completely approved for their mortgage once they have a pre-approval and nothing can go wrong.
The Real Deal – PRE is the key part of ‘pre-approval’ to pay attention to. A buyer cannot apply for a full approval until they find a home. If buyers provide a pre-approval from a reputable mortgage broker and company, chances are they will be able to actually obtain the mortgage, as long as they don’t have a life change such as job loss, credit change, etc.
Definition – This is the period of time that buyers have to inspect the home and conduct their due diligence. The deadlines for inspections and type(s) of inspections to be conducted are included in the Purchase agreement.
Common Misconception – Buyers cannot attempt to renegotiate or back out of the purchase following or as a result of an inspection.
The Real Deal – After their inspection(s) buyers have the right to proceed with the sale, renegotiate purchase terms, or back out of the sale. If parties are unable to come to an agreement, buyers are entitled to the return of their deposit. Buyers sometimes use the inspection contingency as a means to renegotiate their offer terms. If this occurs, we will advise you accordingly depending on the circumstances.
Definition – An extensive, legally binding contract between the buyer and seller. This agreement defines what each party must do prior to and up to the closing in order to complete the sale. It has clauses to protect both buyer and seller.
Common Misconception – Once the Purchase Agreement is signed, the deal is done and nothing could go wrong.
The Real Deal – Once this is signed you have crossed a huge hurdle and the sale usually occurs. However, there are circumstances in which a party fails to perform its obligations under the Purchase Agreement. If this occurs, we will advise you accordingly depending on the circumstances.
Definition – An appraisal is an evaluation of a home’s value conducted by a licensed appraiser that is hired by the buyer’s mortgage company. The purpose of an appraisal is to allow the lender to ensure that the home’s value is enough to warrant a mortgage in the amount that the buyer is seeking.
Common Misconception – Buyers use this to get a lower price, or it is another inspection.
The Real Deal – Buyers have no control over the amount of the appraisal, and it is not another inspection. Most of the time appraised values reflect the amount the buyer is willing to pay for the home. Appraisals sometimes come in too low; this is more apt to happen when there is a lack of comparable sales in the area. If the appraisal does happen to come in too low, we will advise accordingly depending on the circumstances.
Definition – A provision in the offer and Purchase Agreement that specifies the date and time by which the buyers must have their mortgage commitment.
Common Misconception – If the buyers do not get their mortgage by this date the seller can keep the buyers’ deposit.
The Real Deal – If buyers notify the seller prior to the contingency date that they need additional time to obtain their mortgage or that they were unable to obtain a mortgage, they can terminate the sale and get their deposit back. However, if the buyers are denied a mortgage after this date the seller is usually entitled to keep the deposit. Please keep in mind that the Escrow policy with regard to the deposit would apply under these circumstances.
Definition – The date on which the deed is executed and transferred to the buyers, and buyers officially take ownership.
Common Misconception – Seller can remain in the home after this date, or the seller can easily change this date after signing a contract.
The Real Deal – This is a firm date in the Purchase Agreement that must be changed by an amendment and signed by the buyer and seller. Sometimes mortgage delays from the buyer or title delays from the seller can cause a closing to be delayed. One other important factor to keep in mind is the house must be 100% cleaned out by this date.
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