A Comprehensive Guide to Property Inspections, Appraisals, and Closings
The real estate market can be complex for both buyers and sellers, with various stages, requirements, and terms that may seem daunting. In this guide, we aim to demystify key elements of the transaction process: property inspections, appraisals, and the closing process.
Inspection, Appraisal, and Closing Process
Buyers usually engage a licensed property inspector to review the condition of the property within the contractually agreed timeframe. In some cases, multiple specialized inspectors (roof, HVAC, structure, etc.) may be involved. If the buyer’s agreement is contingent on financing, a licensed appraiser will evaluate the property value on behalf of the lending institution, ensuring their investment aligns with the property’s worth.
For commercial properties, buyers may request a comprehensive environmental audit or soil test as mandated by their lender.
Role of the Closing Agent
A closing agent, either a title company or an attorney, is appointed to verify and ensure clear real estate title. By examining the entire recorded history of your property, they guarantee that:
- Your property title is free from encumbrances (e.g., mortgages, leases, restrictions, liens) by the closing date, and
- All new encumbrances are appropriately included in the title.
Contingency Clauses
Contingencies are conditions that must be met for a contract to become legally binding. For instance, buyers often include a contingency clause that makes the contract dependent on a satisfactory home inspection report from a professional inspector.
Before finalizing the purchase of your property, the buyer scrutinizes every facet of the property, as outlined in purchase agreements and related addendums. This can include:
- Securing financing and insurance
- Reviewing all relevant documents, such as preliminary title reports and disclosure documents
- Conducting detailed inspections.
The buyer can assess the condition of your property with numerous inspections, including roof, termite/pest, chimney/fireplace, property boundary survey, well, septic, pool/spa, arborist, mold, lead-based paint, HVAC, and more.
The outcomes of these inspections lead to two potential scenarios:
- Successful closure of each milestone and removal of contingencies, which moves you closer to the final closing; or
- A request from the buyer for contract renegotiation (usually price) based on the inspection results and document review.
When faced with a demand for renegotiation, it’s crucial to respond objectively, while safeguarding your interests. This is where a professional listing agent’s experience and commitment can make a significant difference in the transaction outcome.
Loan Approval and Property Appraisal
We recommend accepting buyers with a lender’s pre-approval, approval letter, or written loan commitment, which offer a stronger guarantee of loan approval than a pre-qualification or lack of documentation from a lending institution.
You should anticipate an appraisal of your property by the lender’s appointed appraiser, who will confirm whether the agreed sales price aligns with the property’s market value.