SELL-WISE™ Guide  Keyword: SELLWISEGUIDE

This guide is written to help you understand the transaction phase of the selling process. Whether you are using a real estate agent or not it always helps to understand how the process really works. We normally recommend only using TN Association of Realtors approved Forms which are linked here>   

This guide is broken into two parts.

 1) The steps and parties involved from the time an offer is presented to the closing

 2) A overview of the most commonly used transaction forms, and the most common terms and clauses that you should pay particular attention that are used in most Tennessee residential purchase and sales contracts that full service and our limited service Flat Fee sellers receive.  

 The steps and parties involved from offer to closing:

Normally after an offer is negotiated and accepted, the executed contract and the earnest money are taken to the buyer agent’s brokerage and placed in escrow. Sometimes the earnest money is held by the closing agent. The closing agent/attorney/title company’s job is to act as escrow agent and receive all the documentation from all parties, provide title searches and title insurance, disburse funds according to instructions, get the deed recorded, and various other details to facilitate the closing of the transaction.

 Closing Agent Be sure you select an experienced and reliable closing agent. The closing company should order the title search promptly, which shows all the liens that are held against the property. It normally takes less than one week get this ordered and the buyer and seller are normally notified if there is any problem with the title within 10 days Normally nothing shows up on the title that is a big problem. If it is serious and the seller can not fix it promptly it can kill the deal.

During negotiations the seller is to provide the buyer a copy of all applicable property condition disclosures and exemptions. If the home was built prior to 1979, a “Lead Paint Disclosure” and EPA pamphlet Protect Your Family From Lead in your Home > http://www.epa.gov/lead/pubs/leadpdfe.pdf  must be provided. If there is a private septic system the seller must provide a Subsurface Sewage Disposal Septic Permit Disclosure. Now there is an additional disclosure required by law in TN .The buyer signs all the  disclosures or notices showing receipt, and returns a copy to the seller or buyers agent to give to the seller and listing broker. The listing broker is required to have a copy of all signed disclosures. IMPORTANCE: Don’t delay on getting the disclosures signed by the buyer.

 Monitoring Critical Compliance Dates Use the following checklist to help you keep up with the critical dates within your contract. http://tarnet.com/files/pdf/2009forms/F64.pdf Some other items the seller needs to give the closing agent is the loan payoff information, an existing survey if there is one, a title insurance policy if there is one and the Homeowner Association (HOA) contact information if you have one. If a HOA exist they usually have a lot of paper work that is given to the buyer when you close. IMPORTANCE: During the first week after the title company receives the contract. (Most closing agents will contact the seller or the listing agent for the executed contract and most of the other items previously mentioned above.) Linked here is letter that serves as an example of what is normally asked for > Closing Agent Docs

 Home Inspection Buyer or buyer’s agent orders a professional home inspection. Most Realtors, lenders and the real estate industry recommend home buyers get a home inspection. http://tarnet.com/files/pdf/2009forms/F48.pdf

The buyer or their agent should not loose any time ordering the home inspection. In fact they should have an inspector lined up ahead of time.  A home inspection typically costs about $200-$500 for an average size home. To see what a typical home inspection report looks like, click Sample Home Inspection. (Note that home inspections are often detailed pages of various items noted about the home often with photos taken by the home inspector showing the condition of the home. The Home Inspection Report will tell the buyer what is wrong with the property per the inspector’s findings. If a buyer decides he/she does not want to purchase the property due to an unacceptable home inspection the buyers agent will provide the following documents to give notification http://tarnet.com/files/pdf/2009forms/F4.pdf  and http://tarnet.com/files/pdf/2009forms/F30.pdf to request a refund of the buyer’s earnest money deposit. IMPORTANCE: ASAP after the contract is accepted and preferably completed within 5 days or less. Repairs Once the home inspection report has been reviewed by the buyer, it usually gets referred  to the seller with a list of repairs the buyer wants fixed. Often the repairs are fairly minor and the buyer negotiates for certain repairs to be made at the seller’s expense. The following form is usually used > http://tarnet.com/files/pdf/2009forms/F4.pdf  IMPORTANCE ASAP after the repair and inspection removal contingency is received by the seller from the  buyers agent or buyer. The contract will normally specify the number of days the buyer and seller have to respond. This needs to be taken care of promptly. Spending too much time at this step can delay the closing date significantly. Note: If the seller fails to timely respond to the buyer’s requested repairs it contractually defaults to the buyer’s repair request is accepted by the seller.  Be sure to confirm receipt in writing of any counter offers that are made on the repairs by the seller so you can prove that you met the deadline in responding to the buyer if ever questioned.

Loan Application and Appraisal The buyer applies for the loan if he/she has not already been approved, and the mortgage company will order the appraisal. The purchase sale agreement normally stipulates the number of days the buyer has to officially make the loan application and pay for the appraisal. The buyer will normally not want to pay for the appraisal until the home inspection is completed and the seller paid repairs have been determined and agreed upon. Per the contract the buyer is suppose to pay for the appraisal with in five days of the binding agreement date.  Normally buyers and sellers have a very short time to get the repairs negotiated.  

IMPORTANCE: The appraisal needs to be ordered right after the contract is accepted. The appraisal report should be in the lender’s hands several days before closing (a week or more is best) to avoid delays. Lenders and buyers who delay on getting the appraisal completed usually cause a delayed closing unless the closing is over thirty days from the binding agreement date. Many buyers want to delay the paying for the appraisal until the negotiation s on the home inspection repairs have been completed. This is understandable, but no delay should take place beyond the dates specified in the contract on paying for the appraisal which is 5 days after the binding agreement date.  

Loan Survey Closing agent will be required to obtain the loan survey by the title company before the title can be insured. A previous loan survey when the seller bought the home initially may be acceptable. Ask the closing agent if this is acceptable and what you need to sign if they would accept it.  Note most title companies will want to do a new one done. Improvements like garages, room additions, driveways, pools and fences are some good examples when the title company may require a new loan survey. The buyer normally pays for a new survey if one is required, which costs an average of $350. The closing agent will normally order the survey.

IMPORTANCE: Complete the survey ay least a couple weeks before closing. Although a survey can be done a few days after being ordered, it’s best to have it is ordered to avoid unwanted delays.

 Homeowners Insurance The buyer will need to contact the insurance company and order a homeowner’s insurance policy. Ot may be helpful for the seller to provide the name of the insurance company that the seller is currently using to the buyer. The name a of the insurance company is to be given to the closing agent and the mortgage company. IMPORTANCE Insurance coverage to be obtained a week or more before the closing to make sure no unexpected problems show-up. The buyer is to bring proof of coverage to the closing. We have lined up homeowners insurance for buyers at the closing table but that is not the time to do it.

 The Home Warranty Almost all contracts call for the buyer to receive a home warranty, which covers repair costs for heating and air conditioning units, major appliances, etc., usually for a period of a year after the closing. For the average home the cost is $350-$400. The buyer generally negotiates for the seller to pay for the home warranty protection which the seller is bulled for at closing.

IMPORTANCE: Normally this is taken care of by who ever orders the Home Warranty. It should be taken care of 3 business days before closing so that the closing agent can enter it on the HUD 1.

 The Buyers Final Inspection Usually the day before the closing date the buyer does a “final walk-through” to make sure the condition of the property is as good or better than when the buyer originally saw the home. Some buyers choose not to do a final inspection prior to closing, but for liability reasons we recommend one be completed with the buyer signing the Buyers Final Inspection

IMPORTANCE: Do your best to get the buyer to do a final inspection a dayor two before closing, sign off on it and get the Seller’s Final Disclosure signed if applicable. NOTE: The F16 Sellers Final Disclosure page 6 of 6 of the Property Condition Disclosure >http://tarnet.com/files/pdf/2009forms/F16.pdf is required for residences where the owner has occupied the property within the past three years.

Preliminary HUD-1: We recommend requesting that the title company (or closing agent) to furnish you a preliminary HUD-1 a day or two before closing so that there are no surprise costs at the last minute. Make sure to review the preliminary HUD-1 with your attorney and bring it with you to settlement. You should compare this draft with the final HUD-1 to insure it’s accuracy. If  you use one our SELL-WISE and BUY-WISE approved closing attorneys we feel you will have an overall better experience since they know we expect the closing to take place on time and the seller to be provided  a Preliminary HUD-1 two days before the closing date.  

The Settlement Statement The closing agent is required to supply you with a Settlement Statement (also known as the “HUD 1″ or simply “the HUD”) at least 24 hours before the closing. (Many lenders are late in sending the loan documents to the closing agent, which prevents the closing agent from preparing the seller and buyer a copy of the HUD-1 24 hours before closing. We avoid some of these unwanted delays when our buyers use a BUY-WISE approved lender and closing attorney. We recommend that you advise all parties early on that you want a copy of the HUD-1 24 hours before closing NOT 24 minutes before closing which is more likely to happen if you advise the lender and the closing attorney. Having it early will give you time to review and understand all credits and debits completely. The HUD-1 shows the accounting of who pays and who receives. IMPORTANCE: Be sure to review the HUD-1 as soon as possible so you have time to get all your questions answered by the closing agent. All in all it should make sense but if you are no familiar with it you will likely have some questions (Have the Closing Agent contact us if you see a commission being paid to our company as the listing broker. A commission to the Buyer’s Broker is a normal charge when a real estate agent is a assisting the buyer. 

 The Closing On the closing day, the buyer and seller normally go to the closing agent’s office. If the buyer and seller use different closing agents which is normally in many areas across Tennessee it will likely be at different times and locations. In the past the buyer, seller and their agents gathered around a table with the closing agent. Now days each party goes into the closing separately The buyer or seller brings a cashier’s check (if there is money due) made out to the closing agent’s company, and the seller brings the keys. Each party signs a pile of documents, the buyers are given the keys, and the seller gets a check if the seller is due one. The seller gets his/her money when the buyer’s loan funds, which is often later in the day or the next business day. We suggest the seller give the closing agent wiring instructions to wire the proceeds, otherwise the seller may need to make a second trip to pick up their check. Ask your closing agent when the funds will be processed so you can make plans for picking them up.

 Attending the Closing Normally the buyer and seller attend closing. It can be arranged for the seller or buyer to have the closing documents sent to them to sign or have a power of attorney assigned to someone to sign the closing documents. If you cannot attend the closing in person arrange with your closing agent the best way to handle your closing.

IMPORTANCE: Do this as soon as possible.

 Note: Contrary to what some full commission real estate agents tell their clients there is no need for an agent to go to the closing. If anything comes up at closing it ends up being a legal issue and the legal interpretation of the purchase and sale agreement is what ultimately rules. We are always just a phone call away if you really think you need us. If you selected the right closing agent he or she should be of the most assistance. Most real estate brokers and agents including our company are not licensed attorneys so we will not be able to provide you legal advise if you need it. 1f the HUD-1 is correct the closing should go as scheduled. The main reason full service full commission real estate agents go to their closing is to pick-up their commission check. Any full commission agent will be receiving a big check from the transaction regardless of the sales price of the home. An average $200,000 home will yield approx. $5,000 to $6,000 commission. The full commission agent normally needs to please their client by being on the job on closing day since they will be getting paid such a BIG commission.

 Below you will find a overview of the most commonly used transaction forms

 The Offer When writing an offer TN real estate agents, most generally use the standard “Residential Purchase and Sale Agreement” form offered by the Tennessee Association of Realtors (TAR). TAR makes it known to Tennessee Realtors that they only authorize the use of their forms for licensed real estate professionals, so if a nonprofessional uses them, it’s at their own risk.)

 The Counter Offer  Unlike the past we now have a Counter Offer Form to enter the counter off on. All you do is enter your preferred changes noting the applicable line number on the offer that you are taking exception to. Using this counter offer forms creates less confusion, less paper going back and fort and improves documentation. Copies are more legible and is a great improvement over how counter offers were handled a few years ago.  In the past when making a counter-offer, it was customary to simply make changes to the offer presented, initial those changes, and fax it back. The proper way to make a change is to draw a single line through whatever you don’t agree to so is still legible, then write in the new term or condition, and initial it. After the other side approves the changes by adding their initials, you have a valid contract. Once both parties have initialed all the changes and signed the contract it is considered an “executed”" contract or binding contract.

 Standard Contract Terms

Here’s a quick overview to typical Purchase and Sale Agreement used in Tennessee. This information is not legal advice, and you should seek the help from an experienced attorney, if any of the following is confusing to you, don’t try to do it yourself. If you want  to employ us to assist you (for a low flat fee) to handle your negotiations on a  typical residential purchase and sale feel free to contact us.

 The Purchase & Sale Agreement First, Click Here and a PDF blank version of the standard Tenn Purchase & Sale Agreement will appear on your screen. We will only point out line numbers that we feel may need some addition explanation. (It may be easier to print a hard copy to refer to as you read this part. W e urge you to read the entire contract thoroughly, and ask a professional for advice if there is anything you don’t understand. The line numbers we refer to are line numbers on the left side of the contract.

 Line #3 and #4 Be sure the buyer listed is the borrower if a mortgage loan is being obtained. Also make sure you are the owner of record when selling a residence.   

 Line #10 The legal description can be obtained from the tax records or you can simply enter the full street address correctly.

 Line #35 through #40 The purchase price is not the same as the loan amount in most cases so do not get the two mixed up.

 Line #13 through #24 Read carefully to be assured that the property includes the items listed/the items under INCLUDED

 Line #25 through #28 Exclude any items you do not plan to leave on your counter offer form.

 Line #51 through #60 Closing costs do not include any real estate commission owed to the buyers agent.The commission may be for example 3% and the buyer closing cost may be 3% This = 6% not 3%. If the buyer agent writes the commission in the offer besure to contact our office. The real estate commission is not to be entered on MLS listing purchase and sales contracts. The commission is covered through the MLS Listing Contract signed by seller and listing broker and through a broker to broker signed compensation agreement. It does not to be in the contract between the buyer and seller too.

 Line #69 through #70 Title Expense is a significant closing expense for either seller or buyer to pay. It is most often paid by the seller for the buyer, but it is a negotiable item

 Line #67 through #60. Enter the name and address of the closing agent’s company you will be using. You should decide on a closing agent after you first place your home on the market for sale. If you don’t have any particular preference, it’s ok to go with the title company the buyer’s agent recommends. They may try harder if they know the agent and want to continue getting his/her business.

 Line #71 through #77 Most buyers want the contract contingent on the buyer obtaining a mortgage loan. Loan approval, home inspection and the appraisal are the main reasons that buyers are not able to close on a home that they have a contract on.

 Line #79 If FHA is checked it will require this a addenda to the contract.

Line #82 through #85 The buyer is obligated to pay for credit report and appraisal within 5 days of the binding agreement date. Buyers who do not do this are not in compliance.

 Line #108 through #113If the Buyer is paying all cash and no mortgage loan is required thes section must be checked and applies.

 Line #114 through #135 The earnest money deposit is not a set amount. You may want to try an obtain an amount that you feel is reasonable from the buyer. We do not recommend the seller holding the earnest money deposit due the time and expense that is required if a dispute arises. Our company does not hold earnest money deposits for several reasons. Our best recommendation is for the buyer’s agent’s company hold the earnest money or let the closing agent hold it in their escrow.

 Line #136 through #156 Take a calendar and carefully look at the date you agree to close on. You also may want to consult your closing agent to determine if that date seems reasonable considering the time of year, workload and the loan type. The lender can also advise you if sufficient time is allowed and of course the buyers agent can help on this if the agent is experienced. Note: We do not recommend closing on the last day of the month and on Fridays. If problems occur it is hard to resolve issues over the weekend causing a three day delay. The last day of the month is usually a very busy time in most closing agents office. This increases the chase of errors and you being rushed. Although more buyers prefer to closing at the end of the month the pace is less hectic at other times during the month for lenders and closing agents alike. Concerning possession prior to closing for the buyer or possession for the seller after the closing you should refer to and use documents designed for these situations.

 Line #180 through #184 Keep in mind state law requires the disclosures that apply to your property need to be given to buyer for them to see and sign prior to a binding agreement is in place.You should have signed the disclosures before your property was listed on the MLS.

 Line #185 through #257 There is a large amount of the purchase and sale agreement devoted to the inspections. The home inspection usually opens the contract up for more negotiations after the contingency contract is accepted. The sellers hands are tied on this contingency and the buyer can decide to no longer pursue with the purchase of the home or the buyer can initiate negotiations to have certain items repaired. The main thing to keep in mind concerning inspections is the time allotted within the contract that must be adhered to. If you as the seller feel the response times are not suitable counter for it to be longer intially when you receive the offer. Delaying the resolution and completion of the repairs can result in a delay in the closing date. Another big concern is doing the repairs in such a way that the buyer does not argue that the rpair(s) was done professionally. You may be surprised how difficult and unreasonable some buyers can be about repairs.

 Line #304 through #312 Days in the contract are calendar days unless specified otherwise.Performance deadlines that fall on Saturday, Sunday or a legal holidays will fall on the next business day before 11:59PM. In calculating any time period the first day starts the day it was entered or the initial date.

 Line #357 through #364 As of July 1, 2009 the following disclosure was required by law.

 Line #365 through #399 This where most buyer agents normally enters the closing costs they want the seller to pay for the buyer.  A $4,000 seller contribution to buyer’s expenses or a price reduction of $4,000 have the same effect, so it should make no difference to the seller. When negotiating a offer, we recommend that the seller to counter-the offer with a higher purchase price and leave the seller paid closing costs for the buyer as is, even if it means the purchase price needs to be increased beyond what the listing price. If the purchase price is increased beyond the original asking price it could mean that the property might not appraise for the asking price. This can occur anytime the comparable sales are less than the subject property’s contract price Note: The MLS prohibits changing an asking price after a contract has been accepted and the property is under contract.

Always pay close attention to anything that has been written on  the blank lines throughout the offer. Those entries will be written by the buyers agent or buyer and usually favor the buyer. They are not likely to be written by an experience attorney thus making them less professional and likely to have conflicting language with some standard clauses with in the offer.

 Line #405 through #406 Note the date for time limit in the offer. Many times as a negotiating strategy the buyer’s agent on gives a few hours for the seller to respond. They are either trying to avoid allowing time for the seller to shop the offer or he/she has an out of town buyer who has a limited amount of time to shop and negotiate. 

Line #418 through #425 Note:The seller is to note whether he/she is accepting, countering, and rejecting the offer by checking the applicable box. We rarely see any seller benefiting from rejecting an offer. As this guide is being written we received a offer $40,000 less than the asking price. The seller may reject it but it would take little effort to counter the offer close to what the seller is asking or seeking. Most agents advise us that their seller is just trying when they make a lowball offer and the agent often seems a little embarrassed. We have seen many low-ball offers that end up as accepted contracts and close. We know for a fact that if every lowball offer was rejected by our sellers that we would end up with a significant number of fewer closings at the end of the year.

Line #426 through #429 The binding agreement date must be entered on the accepted counter offer or the accepted offer. Fill in this date if you as seller are accepting the offer or counter offer! If the binding agreement date is left blank, technically none of the performance days starting at the binding agreement date and all the deadlines in the contract are not established.

 Line #426 through #429 The counter offer form to be checked in the ACCEPTED box if the counter offer is accepted and the binding agreement date is to be entered by the accepting party. The binding agreement date can be entered by seller or buyer depending on who is accepting the counter offer. Binding agreement is the date the accepting party signed and accepted the counter offer or contract.

 Loan Pre-qualification vs. Pre-Approval Generally, a Pre-qualification Letter means the mortgage company has talked to a borrower on the phone, and based on what the borrower said, he/she should be able to get a loan. They may or may not have run the borrower’s credit to make this determination. Basically, a pre-qualification letter means little or nothing. A Pre-Approval Letter is much more valuable to the seller and buyer than apre-qualification, and generally means the mortgage company has taken a the application, reviewed the credit report, and received complete documentation from the borrower such as W-2, paycheck stubs, bank statements, and/or tax returns. The borrower has been approved, and the only conditions remaining are approval of the property primarily the appraised value, and that the mortgage company can refuse the loan if the borrower’s situation substantially changes before the closing date, such as if the borrower loses his/her job, finances a new car. This terminology will vary depending on the lender, but what you want as a buyer or seller is a complete mortgage application with credit report and all of the buyer’s documentation has been done and has been approved. If you are the buyer, you should obtain a mortgage loan pre-approval letter before you start shopping for your home. Most sellers will ask for a preapproval letter from the lender when they receive an offer. If you are selling a home you should be more concerned about the buyers ability to obtain financing than have he/she to provide a large earnest money deposit.