The Real Estate transaction is a complicated process that starts with a buyer making an offer to purchase a seller's property. A formal offer involves an Agreement of Sale prepared on forms approved by the Pennsylvania Association of Realtors. These forms are preprinted and used by most major firms in this market area. Your Realtor should help you complete these forms.
The buyer's good faith deposit usually accompanies the offer. This can be as much as $1,000.00 and will be credited towards the buyer's total down payment. The buyer's personal check is made payable to the listing broker who must, by law, deposit the check in a separate insured escrow trust account when the offer is presented and accepted.
The Agreement of Sale also must spell out provisions for the pay out of the remainder of the deposit monies, which may range anywhere from 5% to 20% of the purchase price.
Any conditions regarding mortgage financing should be written into the Agreement of Sale. As a rule, a buyer is given five to six weeks to obtain a firm loan commitment, and has 10 days to make a completed application for a mortgage loan after acceptance of the offer by the seller.
Under the Agreement of Sale, the buyer may elect to have a licensed exterminating company inspect the property for termites, wood-destroying insects and organisms, and any associated structural damage. Most mortgage companies require this inspection.
If infestation and/or damage are discovered, specific remedies are contained in the wood infestation addendum to the Agreement of Sale.
Also, the buyer has the option to have an inspection of structure, roof, electrical, plumbing, heating and cooling systems and built-in appliances, as well as a test for radon and lead.
Unless otherwise provided for in the Agreement of Sale, the following will be prorated and adjusted between the buyer and seller and paid at closing:
- Taxes on real property will be prorated on a fiscal year or calendar year basis, as appropriate, to the date of closing. Taxes prepaid by seller will be credited to seller at closing and paid by buyer.
- Rents, if any, for the property will be prorated to the date of closing.
- Accrued, but unpaid, interest and other charges to seller, if any, will be computed to the date of closing and paid by the seller. Interest and other charges prepaid by seller will be credited to seller at closing and paid by buyer.
It is customary in this area for the seller to convey title by Special Warranty Deed at closing. The average time from execution of Agreement of Sale to transfer of title varies, but is approximately 60 to 90 days.
Once the offer to purchase is accepted and signed by the seller, the Agreement of Sale becomes a binding contract and the clock starts ticking toward a settlement date. At this time, the buyer must apply for a mortgage, title insurance and property insurance.
If the buyer has not been preapproved for a mortgage, their first step is to complete an application with a loan officer. You will be asked for information such as:
- past and present employment
- credit history
- assets and liabilities.
Accurate names, addresses, all account numbers, and balances are important for expedient lender verification. The buyer generally pays an application fee at this time.
After the lender verifies all information supplied by the buyer and credit report, an appraisal of the subject property is ordered.
The final step is for the loan package to be submitted to a loan committee for approval. Once the application is approved, the buyer should instruct the lender to:
- provide their Realtor with a copy of the mortgage commitment document
- prepare closing documents
- submit closing instructions to the buyer's title insurance company.
The buyer or their representative must arrange for title insurance to insure the buyer's and lender's interest in the Real Estate to be acquired. The title insurance company performs a title search and examination of the title records and issues a commitment, or report of title. The report is sent to the lender, buyer, and seller, as well as to their representatives before closing.
The title company:
- works with all parties to insure the conveyance of clear title
- conducts settlement
- receives and disburses funds as shown on the HUD-1 sheet prepared at settlement in accordance with the Contract of Sale and the lender's instructions
- records documents and issues title insurance policies to the buyer and lender.
The buyer must arrange appropriate property insurance (which must be acceptable to the lender) for coverage of Real Estate and personal effects to begin the day of settlement.
Buyer's Preparation for Settlement Day:
Believe it or not, we are drawing near to the conclusion of the process. However, there are a few more details for the buyer to attend to prior to settlement.
- The buyer should exercise their right to pre-settlement inspection of the property approximately 24 hours prior to closing.
- The buyer should notify all utilities to change billing from seller to buyer, effective as of the date of closing or occupancy, if occupancy precedes settlement.
- The buyer must verify that all lender requirements are met and arrange to have certified funds for closing.
- Lastly, the buyer must bring the original hazard insurance policy and either a bill for the premium or paid receipt to closing.
Now, I can finally say it. Congratulations, you have purchased your new home!
An ESTIMATE of Most Common Settlement Costs in the Main Line Real Estate Market:
In the Philadelphia suburbs, it is estimated that closing costs can run at about 10% of the purchase price. The following is a list of the most common fees that you will encounter:
SERVICES: ESTIMATED CLOSING COSTS:
- Title Search/Title Insurance: One time charge insures owner and lender against title defects.
- Title endorsements
- Survey endorsements
- Premium based on purchase price as set by PA Insurance Commission.
- $100.00 to $200.00 each as required
- $15.00 for lender
- Fire Insurance: Generally part of Homeowners Policy required for at least the amount of the Mortgage
- One year paid in full -- usually about two months in escrow.
- Flood Insurance: If required, check with insurance agent/lender.
- One year paid in full -- usually about two months in escrow.
- Flood Certificate: If required.
$20.00 to $25.00 fee
- Transfer Tax: Based on sales price, usually split equally by the buyer and seller.
- Up to 2 1/2% of sales price split equally between buyer and seller. In the city of Philadelphia, the rate is 4%.
- Real Estate Property Taxes in Escrow: Pennsylvania tax is paid twice a year (fiscal year); school in August; county and local in April (calendar year).
- 12 to 14 months held in escrow by lender
- Mortgage Application Fee: Credit report, property appraisal and processing fee.
$300.00 to $400.00 Mortgage Origination Fee and Points: An origination point may be collected at application, remainder usually at settlement. Some of this may be tax deductible as interest in advance. 1% to 4% of the mortgage amount Mortgage Document Preparation Fee $150.00 to $300.00 Private Mortgage insurance: If total deposit in less than 20% of the selling price. Check with lender. Recording Fees: Deed and Mortgage to be filed in County Court House $90.00 to $120.00
- Inspections (if not paid prior to settlement):
- Termite/insect infestation
- Home Inspection
- Water Potability (well)
- Septic
- Radon
- $60.00 and up
- $150.00 to $400.00
- $75.00 to $100.00
- $75.00 to $90.00
- $75.00 to $200.00
Attorney's Fees: An attorney is not required. It is up to the buyer as to whether to hire an attorney or not. Negotiable Broker's Conveyancing Fee: Coordinates paperwork to facilitate closing. $150.00 to $200.00 Attorney's Review Fee: May be levied by lender $200.00 Miscellaneous: Fuel oil costs, condominium fee, adjustable-rate mortgage fees, etc. By adjustment Notary Fees $25.00 to $40.00 Tax Service Fee: One time charged by lender to set up payment of taxes $50.00 to $125.00
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