Being “in contract” when selling your home means more than you and the buyer have executed a contract of sale. Before we get into the complete meaning of being in contract, lets first discuss what should have taken place before you went into contract.
Prior to moving to the contract stage of your sale several things should have occurred:
- A buyer or buyers and you the seller have agreed on the purchase price of the home.
- You have agreed on how much money the buyer or buyers will give to a third party (In some states it is an attorney and in others it is a title company.) to hold in escrow until you close. This amount of money should be enough that the buyer is motivated to do all the things they need to do, ie sell a home or apply for a mortgage, in order to close and not risk losing their money.
- You have agreed on the total down payment that will be due at closing. For example if someone is obtaining a mortgage, they may be putting down a total of 20%. However when signing contracts they are giving 10%, and at the closing the remaining 10%.
- You have agreed on a closing date. This can be exact or it can be on or about that date. For example in some states it is customary that you use an exact date, “The closing will take place on June 9th.” Compared to, “The closing will take place on or about June 9th.” On or about is typically considered a target that can be moved without penalizing either side.
- You have agreed on how long the buyer will take to produce a mortgage commitment also called a mortgage approval (NOT TO BE CONFUSED WITH A PRE APPROVAL. A PRE APPROVAL IS NOT A COMMITMENT TO LEND. IT IS DOCUMENT THAT SAYS THE PERSON WHOM SIGNED IT HAS REVIEWED THE DOCUMENTS NEEDED TO OBTAIN A MORTGAGE COMMITMENT AND IS STATING THEY ARE QUALIFED FOR THE TERMS IN THE PRE APPROVAL.)
- In some states the home inspection will take place after the contract is signed, allowing a fixed amount if time for the buyer to hold the inspection. In others the home inspection may have taken place prior to you and the buyer signing the contract of sale.
To go into contract means that you have contacted an attorney or title company, each state is different, and obtained a contract of sale form approved in your state. You or they will have to fill in:
- The buyer and seller’s names, addresses, and in some states the phone numbers and email addresses.
- If any parties are being represented by an attorney, then the attorneys name, address, phone number and email address.
- The purchase price.
- The amount being put down on the signing of the contract of sale.
- The remaining downpayment to be given at closing.
- The mortgage amount if any.
- The date of the closing
- The location the closing will take place.
- You will list out what is to be included in the sale, such as washer and dryer. Or you can also list what is excluded, such as furniture, a special light fixture.
Once your in contract the time frame for closing begins to tick. This means that you as the seller need to create a calendar and begin to prepare for moving. For example if the contract of sale states a mortgage approval is required in 30 days from the date of the signing of the contract, make sure in 21 days you call the buyer and ask how things are going. If someone is getting a mortgage, they may not be required to have an appraisal. So it is important to ask the buyer is an appraisal is needed. Because if it is, you can follow up if you are not getting a call from an appraiser to set up an appointment.
All contracts have provisions for what happens if the buyers do not meet their obligations and cannot close on time (As well as for the seller.). As with anything you want to be prepared for this. In many cases just a simple extension of time to the buyer to close resolves the issue. But you want to know why there are delays. Sometimes that information can help you determine if the buyer will actually be able to close. The point here is to be prepared for issues that prevent a closing on time, and therefore be proactive to make sure the buyer and yourself are doing everything required to close on time.
