Inspections, Appraisals, and Settlement

Title Company and Escrow Holder. A title company or settlement agent will need to be selected to manage the settlement. The title company typically is responsible for conducting the settlement, preparing and recording all of the required documents, including the deed and mortgage releases, assembling the HUD-1 form which details the financial elements of the transaction, and collecting and disbursing funds associated with the transaction. The title company will often serve as a neutral third party and may help to resolve issues that may arise among the parties. Often, the title company holds the earnest-money deposit made by the buyer. Customarily, the buyer selects the title company. Your agent should be able to recommend a reputable title company and will assist you in obtaining a quote for their fees. The title company will research the complete recorded history of the property to insure that the title is free and clear of encumbrances by the date of closing.

How to Hold Title. There are different legal categories for holding title - one category is reserved for married persons; other categories may include a "right of survivorship" for non-married purchasers (which means that if one co-owner dies, the other co-owner inherits the deceased co-owner‘s interest), etc. Different methods of holding title have different legal, estate, and tax implications, especially when selling the property or upon the death of a title holder. You may wish to consult with an attorney or tax advisor on the best way to hold title to the property that you are purchasing.

Inspections. At some point in the purchasing process, it is recommended that you have a professional home inspector evaluate the condition and soundness of the home you intend to purchase. Sometimes such a home inspection is included as a "contingency" to the contract, which means that if the inspection reveals problems or defects, you and seller might negotiate an agreement for how those problems or defects will be resolved so that the sale can continue. However, the contingency may also allow you to cancel the contract if the findings reveal very serious conditions or if you and seller cannot reach agreement on the resolution to the identified issues. Your agent should be able to recommend reputable, licensed inspectors. You may also elect to conduct certain specialized inspections for things such as environmental conditions (e.g., radon, lead, asbestos, or mold), roofs, wells and septic tanks, pools, etc. Remember, inspections are not only for purposes of identifying issues with home, but are also a way for you, the buyer, to learn about the home and what is recommended to maintain it and keep it in good condition. Your inspector will be an excellent source of advice and information about how to care for your home, how to undertake renovations, and how to prevent big problems in the future.

Appraisal and Lending. Keep in close communication with your lender, who may require additional documents or information to finalize and fund your loan. Your agent might also communicate with your lender to ensure that all is proceeding smoothly and to avoid any last minute surprises. Before the final approval of your loan, the lender will often send an appraiser out to the property. Appraisers are specialists in determining the value of real estate. The appraisal is often based on the home's size, condition, special features, and location, all in comparison to other homes for sale in the area or homes that have very recently sold. Appraisals are critical to the lender. The lender wants to be sure that the value of the home you are buying, as determined by the appraiser, is at least equal to what you are paying for the home. The lender is determining loan amounts in relation to that price. If the appraisal is below the purchase price, it may affect the loan program you have been approved for. Your agent should explain to you what the implications of the appraisal are when you are preparing the offer and you may elect to include an appraisal contingency in the offer. Before you submit any offer, be sure to ask you agent to do a general review of comparable homes and recent sales prices to help you determine what price to offer on the home and whether the home‘s listing price is generally reasonable or unreasonable. While this review would not be official and will not supercede the appraiser's results, it should help to establish whether the price for the home is reasonably within the range of prices for similar homes in the area and should give you an idea of whether the appraisal results are at risk of being lower than the purchase price. For example, if the list price is $600,000, but no home in the same zip code has ever sold for more than $450,000, you can reasonably anticipate that the appraiser may have a hard time finding homes nearby that are comparable and justify a $600,000 price tag.

For more information and for any additional questions, please feel free to contact me at any time.

© Nadia Nejaime, 2006