Your Offer Was Accepted, Now What?
Offer acceptance starts a number of events. In this article I will overview the major ones. Note that while every purchase will be slightly different, the overall process does not change.
Below is a high-level overview of the closing process. Note that there may be items included in the diagram which will not apply to your specific purchase. Below are two that may or may not apply to your purchase:
- If you are paying cash, then the blocks with the symbol do not apply.
- Blocks with the symbol only apply to investment properties.
So you have an idea as to when events occur, see the table below. Note that in the table I am assuming:
- It is an investment property
- Closes within 30 days of acceptance
- The property is financed, not cash
- The property is within an HOA
- 10 day due-diligence period
|Title receives EMD||2|
|Loan paper work complete||3|
|Property manager walk through||3|
|Rehab quote received||5|
|Go/No go decision||7|
|End of Due Diligence||10|
|Insurance in place||11|
|Property management agreement signed||12|
|50% of rehab cost sent to handyman||25|
|Wire balance of funds to close||27|
|Property walk through||29|
|Close of escrow||30|
|Send balance of rehab cost to handyman||38|
|Marketing photos complete||39|
|Property manager starts marketing property||41|
While the above is not exactly what will happen with every property, it should give you an idea of the sequence of events and approximately when it occurs.
Below are sections that describe the major steps in more detail.
Earnest Money Deposit
Nothing starts before the title company received the earnest money deposit wire from you. The EMD must be received by title within 2 business days. If the funds are not received by the end of the 2nd business day, the seller has the option to cancel. Note, the title company will contact you directly with wiring instructions. Some considerations:
- You may be able to wire funds on-line or you may need to go to your bank to wire the funds. If you go to the bank, take the wiring instructions with you and give them to the bank agent.
- You MUST use a wire, ONLY a wire is acceptable. The bank may tell you that you can use: a cashiers check, a personal check, cash, an ACH or other methods. They are wrong. ONLY a wire is acceptable. NOTHING else will work.
- Get a copy of the wire receipt and send it to us. You can take a picture of the document with your phone and send it to us if that is easier.
- If you wire the funds after 2PM, the funds will be received by title the next business day. Please take this into account so you meet the 2nd business day requirement.
- Let us know when you wire the funds, so we can let title know.
- The EMD is part of your down payment.
The length of the due-diligence period is specified in the purchase contact. Typically, it is 10 days, but it could be less. The clock starts the day the purchase contact is executed. Holidays and weekends count. It is important for you to know that during the due-diligence period you have the right to cancel the purchase for any reason and your earnest money will be returned. The primary reason you might choose to cancel the purchase is if the inspection uncovers significant factors that were not anticipated.
A typical inspection will cost between $250 and $325, depending on the property. Larger properties and properties with a pool cost more. You will pay for the inspection once the inspection is complete. You can pay by check or credit card. If you are using a check, please let us know to we can let the inspector know. The property inspector's contact details are below.
Ron Cooper Cornerstone Home Inspections LLC 322 Oliveiro Ct Henderson NV 89014 702-719-9464 Chiinspections@cox.net
If you would like to pay by credit card, please call the inspector directly and he will take your credit card over the phone.
The result of the inspection will be a detailed report. An example inspection report is linked below.
One of the concerns most buyers have is that multiple items are discovered during the inspection and appear o the report. Know that every property, even if new, will not be perfect. In our experience, most properties will have 10 to 15 items that will appear on the report. Part of our service is that we go through the inspection report and create a summary of what we would repair, if we were buying the property. This is useful because some of the items noted in the inspection are only for information purposes and do not require action. We will also include an estimated rehab cost. The estimated costs are based on standard costs and should be reasonably accurate. However, the estimated costs will likely only include the cost to repair the items listed in the in section report. There will be additional items such as paint, appliances, window treatments, etc.
If this is an investment property, the property manager will walk the property and provide their rehab recommendations. (See, "Property Manager Walk Through" below for more details.) There is a significant difference between the property inspector and the property manager's views.
The property inspector case about systems like the HVAC and the roof, they do not care about cosmetics. The property manager assumes that all the systems work and only cases about the cosmetics, which is what will attract tenants.
Once we have the inspection report items and the items from the property manager, we work with trusted vendors to get quotes for all major work items. Once we have quotes, we have a realistic idea of the total cost of the property. Below is a link to a sample quote.
Knowing the total cost of the property, you can make a final decision as to whether to terminate the purchase or continue to close. We will discuss the results of the inspection with you and make recommendations based on the results.
If significant costs are discovered during the inspection, we have the option of requesting the seller make or pay for the repairs. The form we list the items on is called a Repair Request. We will complete the Repair Request in consultation with you and send it to the listing agent.
Know that the seller has no obligation to make or pay for the repairs but if they choose not to, we have the option to terminate the purchase. This does not happen frequently, if we request reasonable repair items. Plus, we have a bit of leverage on the seller to make the repairs. We will discuss this at the appropriate time.
Note that I stated "reasonable" repairs. If we were to request a shopping list of minor items to be repaired, the seller would likely refuse to make any repairs. So, we need to decide what makes sense and what does not. Generally, we include items that are unbounded in cost or of significant cost.
Obtaining property insurance is critical. If you are financing the property, insurance will be required by the lender. If you like, we can obtain one or more quotes for you from agents we've worked with in the past. We will provide the property details and have them contact you directly for whatever personal information they require. We will also send you the property information you will need to obtain quotes from your current insurance providers.
Once you choose the policy that best meets you needs, please send the insurance quote and the agent's details to us so we can get this information to the title company. The insurance in place before we close on the property.
Property Management Agreement
If this is an investment property, the property management company will send you a management agreement for your signature. Below are links to the management agreement and a sample tenant agreement from one of the property managers we work with.
Note that McKenna Property Management will handle turning on the utilities for the rehab period. Once a tenant is in place, the tenant will be responsible for all utilities. However, they cannot turn on utilities until they receive the executed management agreements so please turn these around promptly.
Home Owners Association Disclosure Documents
If the property you are purchasing is within an HOA, you must receive an HOA resale disclosure package. You will usually receive this package about 10 days after contract execution.
You will have 5 calendar days from the day the package was received by you or your agent (whichever occurred first) to review and accept or reject the contents of the package. If you reject the package within the 5-calendar day period, the sale will be terminated, and your earnest money will be refunded. If you choose to proceed with the purchase, you must need to sign an acceptance form, which will be provided with the HOA documents.
Since we are not attorneys, we cannot review the HOA package for you. However, we will point out specific sections of the package that we would find interesting if we were buying the property. Remember that you are the one buying the property and will be the one agreeing to the term and conditions set forth in the HOA package so do review the entire package.
About 5 business days before close of escrow (COE), we will contact your lender to verify that everything is on path to close on schedule. If not, we need to take immediate action to get them what they need in order to close on schedule.
About 3 business days before COE we will contact the title company and determine oil they have everything needed to close.
PayPal Deposit to Rehab Vendor(s)
Just before close of escrow the rehab work will be scheduled. In order for the work to start the handyman service requires a deposit of approximately 50% of the total rehab cost. The funds are sent via Zelle, which most banks support. Please contact us for where to send the funds.
Wire Balance of Funds to Escrow
Two business days before close of escrow you will wire the balance of the funds necessary to close. The title company will provide wiring instructions and the specific amount to be wired. NOTE: THE FUNDS MUST BE WIRED, NO OTHER FORM OF PAYMENT IS ACCEPTABLE. Please get a copy of the wire receipt information as you did when you wired the EMD.
The day before close we will visit the property. This is not a re-inspection. What we are looking for are material alterations to the property. Material alterations would include:
- Fire damage
- Water damage
- Appliances that were to be conveyed with the sale are missing The above items are all major and expensive damage. If we discover such damage, we will stop the COE and resolve the issues. To document the condition of the property we will also take a video, which we will send you.
In most cases, you will not come to Las Vegas for the walk through. If you choose not to, we will send you a walk-through waiver form. Below is a sample walk through waiver form
There is a slightly different procedure if the property is tenant occupied and the tenant will remain in the property after close. In this case the property manager will do the walkthrough and take this opportunity to meet the tenant. The property manager will also document the condition of the property. This is in lieu of us doing a video walk through of the property.
Close of Escrow
Depending on whether this is a cash or financed purchase, the process will be different.
The closing documents will be emailed to you. Simply sign where indicated on the pages and send them back to the title company. No notary is required and there is no need to return the original documents. Just sand and send or fax the signed documents.
A mobile notary will be sent to you. You can have them come to your home or meet in your local Starbucks. The meeting location and time is up to you. Title will contact you directly to arrange this.
Once the documents are signed, the mobile notary will over-night the documents back to title. This adds a day to the closing process, so we need to adjust the signing to account for this delay.
If you are in another country, you can sign the closing documents at a US Consulate or US Embassy. Note that it can take up to two weeks to get an appointment so plan accordingly.
We try to schedule the work to start the next business day after close of escrow. Once work starts, we will visit the property regularly to check progress and take progress videos, which we will send to you. Depending on the work being performed, we visit the property daily.
Depending on the amount of work to be performed, we may ask you to send one or more progress payments. We typically do this only if there is a significant amount of material cost involved. The handyman we use has low prices but that also means they have limited funds.
Once the work is cosmetically complete, we will coordinate with the property manager to have a professional real estate photographer take the photos. Minimizing the time to rent and maximizing rent is dependent on good marketing of the property. When people are looking for a place to rent they will scan through many properties and what will grab their attention is bright and happy photos. Typical cost is about $100.
Once work is complete, we will send you the final invoice for the work. Please pay the invoice amount using Zelle, as you did before the work started.
Property Manager Hand-Off
Once rehab is complete we turn over control of the property to the property manager. Even though the property manage now has responsibility for the property, we are not out of the picture. If you have a problem, just let us know. We will take responsibility for getting it resolved. That includes the year you purchase in and every year after. We do not disappear after close of escrow.
There will be unexpected issues that occur during the close. This is normal, and we are here to handle the issues as they come up. Also, we will remind you when action is needed by you so no worries on tracking things.