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Survey

The survey is required by the mortgage company and the title company. This gives the boundaries of the land that you are buying as well as the location of the home, the fences, garage, easements, encroachments, etc.

It is needed by the title company to get the proper legal description of the property. It is needed by the lender and you to make sure that such things as your neighbor’s improvements are not on your property. It is also there to show the location of all the improvements. It will show the location of any easements. Sometimes a prior property owner will build on the utility easement. This is not allowed by the utility companies unless they sign a waiver. The mortgage company will normally not fund the loan with encroachments on the utility easement. The easement is there so that utility companies for as water, sewer or power can repair and service the pipelines. They can’t do it very well if the homeowner’s build on top of the easement.

Any property built where it is not supposed to be is considered an encroachment. Most of the time these have to be remedied. Many times the remedy is a waiver. That means you or your neighbor has permission to be there even though he does not own the land.

Property Condition

The buyer has several choices on how he wants to negotiate with the seller regarding the condition of the property. The first, and least recommended, is to buy "As Is". This is obvious. If you buy this way, you better be buying a "Fixer Upper" at a low price. Realtor’s do not like this type of contract since it can always be a problem later on especially if the buyer thinks the seller covered up something that should have been disclosed.

The second choice, and much preferred, is to make the condition of the property subject to inspections. Once inspected, the buyer does not have to buy the property if he finds repairs that are too numerous. If the seller is unwilling to do the repairs and they are too numerous, the buyer may terminate the contract and earnest money will be returned. Sometimes the negotiation of the contract is a two phase process. First, the contract terms and price then the condition and what the seller has to do to sell the house.

Inspections

The buyer has the right to inspect the property within a certain named period of time. (Normally within 10 days of the effective date of the earnest money contract) He has the right to inspect per the property condition addendum. This addendum states that he may inspect for termites, structural, mechanical, (A/C & Heating) electrical, plumbing, roof, appliances, siding, paint, etc. This does not mean that a buyer can complain about the color of paint or that they would like white countertops in the kitchen. These have to be required repairs or code violations.

Once the inspection is completed, the buyer turns the report to the Realtor and he delivers it to the seller. The seller may either accept the report and repair all that is on the list since it was within the allowance or he may ask the buyer to prioritize the list. This means that the buyer will choose those items that he feels are important. This can go back and forth until buyer and seller agree to the extent of the repairs that the seller will provide. This can also be settled by stating an amount. Once agreed, this condition of the earnest money is met. The buyer has the right to inspect the repairs, but cannot make the seller change them if they are done in a workman like manner.

Option Period

The buyer has the right to consider all aspects of purchasing the house during the first 10 or 15 days of the effective date of the contract. This is normally when the inspections are done to determine the condition of the house. However, this is not the only reason for the option period. During the option period, the buyer may terminate the contract for any reason. In order for the option period to be in effect, the buyer has to pay for that privilege. On a $ 100,000 house, the cost usually will be $ 100 to $ 250. If the buyer determines that he does not want the house, then that money goes to the seller. The seller then returns the earnest money and the contract is null and void.

Broker’s Representation

This must be fully disclosed in the contract. It will show the listing agent and the fact that he represents the owner, It will show the selling agent and whether he represents the buyer or seller.

Closing date and Occupancy

This causes more problems and arguments than any other part of the negotiation process. Think carefully when planning the date of closing. First, the date is not absolute, it is a target date. There are contractually extensions of this date based on whether certain conditions have been met. Don’t pack you bags and move until the actual closing date has been set and all of the conditions have been met. Any condition not properly met will delay the closing. It is not a done deal until the buyer and seller sign papers. Anything can go wrong. For the most part, once a contract has been written, the house will close. It is rare that they do not, but most of the time it will take patience and willingness to work through problems. I guarantee, the closing process will not go perfectly. There will always be some compromise and patience will be required. If possible, make possession a few days later than the closing date. This will allow the seller to get out of the house and have it ready for the buyer.

Special Provisions

This is where the buyer asks for anything special he wants the seller to do for him in order for the buyer to purchase the house. This would be where the buyer asks for the house to be painted, carpet to be installed or for the seller to pay for some of the buyer’s closing costs.

Buyer’s Expenses

There are other details in the contract such as normal buyer and seller expense. You should have your Realtor or loan officer give you a good estimate of what the total cost to close will be as well as the monthly payment. This will include taxes, insurance, mortgage insurance etc. It will not include the cost of maintenance fees.

Mortgage Insurance

Mortgage insurance, commonly know as foreclosure insurance is added to the mortgage. If you are doing a conventional loan, it is called private mortgage insurance (PMI) if FHA loan it is called mortgage insurance premium (MIP) and VA it is called a funding fee. They all have their own rates, but for the most part will add about .6 of one percent to the payment. On $ 80,000.00 loan about $ 40.00 per month. To avoid mortgage insurance, pay 20% down and it is eliminated.

Mortgage Insurance whether by the government under the FHA or VA or conventional lenders through private mortgage insurance companies is foreclosure insurance. They will insure usually the top 20 to 25% of the loan. The lender does not take the risk on the first part of the loss, the PMI company does. This is why if you put down 20%, there will be no PMI insurance.