Once a Buyer and Seller ratify a sales contract, they must jump through a few hoops for ownership to finally transfer. There’s a zillion ways to mix and match contract terms to meet the requirements of the Buyer and Seller, so each contract is different. Here’s the basics so you know what to expect.
Steps Tied to the Ratification Date
- Your contract is ‘Ratified’ when the buyer and seller agree to the sales price and all terms. It typically takes 30 to 45 days for a contract to settle.
- Several activities are tied to the ‘ratification’ date. Don’t confuse this with the ‘Contract’ date which is the date the buyer submits the offer to the seller. It can take three hours to three weeks or more to finalize negotiation to obtain a ratified contract.
- The typical contract specifies that the seller will insure that all existing appliances, heating, cooling, plumbing, electrical systems & equipment will be in normal working order as of Possession Date. A typical home inspection contingency gives the buyer time to have one or more professional inspections. If the buyer’s inspection discovers any of these types of issues, they can provide notice to the seller to make repairs at the seller’s expense — no negotiation is required. The buyer can negotiate other items for the seller to repair or to provide a credit. Or, the seller can simply void the contract and have his escrow deposit returned.
- Once the home inspection contingency expires, a buyer cannot void a contract based on the home inspection contingency.
- In Maryland, a home buyer also has five days to review the community’s HOA documents. If the buyer doesn’t like the HOA’s restrictions, he can void the contract within this review period and have his escrow deposit returned. This contingency starts once the HOA documents are delivered which is typically soon after ratification date.
Typical Financial-Related Contingencies
- The buyer’s escrow is deposited immediately after ratification. This deposit is applied to the downpayment at settlement.
- The buyer is typically required to apply for financing within 7 days or less of ratification. Although the contract gives the buyer time, they really should have applied before the Contract Date. By selecting a loan officer and providing all information up front, they’re ready to go once a contract is ratified.
- A typical contract specifies the days allowed to get final loan approval for this loan. The loan’s underwriter will have reviewed the contract and verified the buyer’s income, debt, cash and credit scores. At this point, the loan is fully approved with a couple of conditions (proof of homeowner’s insurance, termite report, etc).
- If the buyer doesn’t obtain financing within the deadline, the contingency doesn’t automatically expire. This contingency will continues all the way to settlement. However, after this contingency expires, the seller can give the buyer notice to remove the contingency, or he will void the contract.
- The typical appraisal contingency works the same way. It will continue unless the seller gives the buyer notice to remove it, or the contract becomes void.
- If the appraisal comes in below the negotiated price, the buyer can proceed as is, or negotiate with the seller to accept a price no lower than the appraised value. The seller is not required to accept a lower price. If the buyer and seller can’t agree, the contract becomes void and the escrow is returned.
Steps Before Settlement
- The typical contract requires an inspection to verify the property is free of active termites or wood-destroying insects within 30 days of settlement. The property is also to be free of damage from insects. If these are discovered, the seller typically repairs this at the seller’s expense.
- If the property is on private well and septic, these inspections are also conducted within 30 days. The seller is required to deliver potable water and a working septic to the buyer and must make any repairs at this expense if needed.
- Although not specified in the contract, the buyer and seller notify the utilities of the upcoming change in ownership.
- Lastly, just before settlement – that day or the day before – the buyer takes a final walkthrough of the property. The main purpose of this walkthrough is to insure the property is in the same condition as it was on ratification. If any of the systems, electrical, etc aren’t operational, this is the last opportunity for the buyer to have the seller resolve the problem.
These are the steps in a typical contract, but the process can be more or less complicated given the specific terms negotiated. For example, a seller could rent-back from the buyer after settlement, there could be additional inspections, the buyer could have a home to sell, etc. Buyers and Sellers benefit from experienced representation to insure that their contract protects their interests and needs.
Contact us anytime with questions on structuring a contract or the real estate market in Montgomery County.