Steps between contract ratification and closing or settlement

Once a contract is ratified, the next steps are to remove all the contingencies to bring both parties to the settlement. This process is done by many parties.

Generally the first thing done is the home inspection. Always contract a home inspector that has certification which requires continuing education. In many parts of the country, anyone can become a home inspector, but certification requires testing based on knowledge and experience. A home inspector will see and test home items as they are. The home inspector can not adversely affect the property. The home inspector will review all major systems (e.g., plumbing, electrical), appliances, look at the roof/attic and foundation, to ensure that everything works the way it should. When things are found that are not working as they should be, either a demand for repair or a request for repair is made of the seller, depending on local laws and customs.

Next, the lender will want to have a valuation of the property to ensure it is worth the sales price. For this they order an appraisal. When the appraised value is equal to or above the contract sales price, the deal continues. If the appraised value is less than the sales price, then the buyer either elects to proceed and cover the difference or both parties need to renegotiate the price, else the deal ends. The lender also requires that any property that touches the land have a ‘pest inspection’ performed to ensure there are no wood destroying pests present. If pests are present, then remediation needs to occur. If there is damage, then the lender may also require repair.

Most lenders require a home buyer to provide at settlement a one-year paid receipt for a fire and hazard insurance policy, often called homeowner’s insurance. These policies are available from insurance companies that deal with property and casualty. This protects the value of the home and the bank’s interest in the property.

Title insurance provides protection in the event any of a number of past actions that threaten the title to your property. Lenders require title insurance to protect their interests. Be sure to ask about an “owner’s” policy to protect your interests. You may save money if you buy owner’s title insurance at the same time as mortgage title insurance, rather than buying it separately later.

The purpose of the walk-through inspection either prior to or on the day of settlement is to determine if all conditions in the contract are satisfied. The time for the buyer to inspect and note defects for correction by the seller is during the contract negotiations and prior to signing the sales agreement. Repair or replacement items should be noted in the contract or contingent on a house inspection request, otherwise, many resale homes today are sold in “as is” condition.