We can help you stay on top of buyer due diligence steps
As a seller, once you have accepted an offer, you still have some work to do. The vast majority of transactions will involve buyer due diligence steps. You will need to follow up with the buyer so that you are aware of the dates by which the steps are to be completed. You’ll also want to be aware of the status of each step so that you are prepared to take appropriate action to ensure the steps are completed in a timely and appropriate manner. You may even need to negotiate what action you will take with the buyer. When you list your home with Tellus Real Estate Solutions we will help you stay on top of these steps to ensure that the due diligence process goes smoothly.
The first task is to be aware of which buyer due diligence tasks are allowed by the sales contract and the deadlines that are associated with those steps. Should you choose to work with Tellus Real Estate Solutions, we will review the contract and then share these tasks and their deadlines with you on our ‘client page’.
The following is a list of typical buyer due diligence tasks, also known as contract contingencies. Specific tasks will require your review, as the seller, so that you are able to foresee and possibly avoid any unintended consequences. Keep in mind that Tellus Real Estate Solutions is a brokerage firm and not a law firm. Our opinions about consequences should not be viewed as legal advice:
- Review of Seller’s Disclosure Statement (NWMLS Form 17): In Washington State, a seller is legally required to provide a disclosure of any ‘Material Facts or Defects’ of the property. The buyer has three days from receipt of this statement to accept the disclosure or rescind their offer. If the seller fails to provide the disclosure and receipt is not waived in writing, the buyer can rescind the offer at any time up until the day of closing. Tellus recommends providing this disclosure before or during the time the original offer is being negotiated. At the time the disclosure is provided, you will want to obtain acknowledgement of the buyers’ receipt and their waiver of the right to revoke their offer before the deadline passes. If the deadline passes, in theory, the buyer has automatically waived their right to rescind the offer.
- Earnest money deposits: Earnest money is the cash or check that the prospective buyer presents as evidence of their good faith in making an offer. If the buyer fails to purchase the home for any reason other than one of the contingencies listed in the contract, and according to the deadlines of those contingencies, their earnest money is forfeited to the seller (who, in some cases, are required to split or share it with their agent or other service providers). According to NWMLS contracts, the buyer has two days to deliver earnest money to their agent, who then has three days to deliver it to the closing agent (escrow). Failure to deposit the earnest money is considered a breach of contract and allows the seller, but not the buyer, to rescind the contract.
- Title review: A standard contingency built into NWMLS contracts, and most other real estate contracts, is the buyer’s right to review the property title report. The report is provided by a title insurance company as part of the insurance process. The title insurance policy insures ownership rights and the title report will list any limitations on those rights against which the title insurance company will not insure. Some limitations are expected and can be taken care of as a normal part of the sales process, such as liens on the property by seller’s mortgage lender. Others may include mechanics liens for repairs or utility liens. Although all of these issues are able to be cleared during the closing process, some Issues cannot be easily cleared such ownership interests by individuals that have not been taken off title. In addition, Home Owner Association (HOA) rules and CC&Rs (Conditions, Covenants and Restrictions) for a neighborhood can limit the buyer’s use of the property. Also, there may be easements for municipalities, utilities or even for neighbors that allow them to pass through or use the property. The buyer has a certain amount of time to review all of these limitations and decide if they are acceptable. If they are not acceptable, the buyer can cancel the contract unilaterally or ask the seller to remove certain limitations. The seller may remove the limitations if they are able, however they may refuse. Having a title company provide a preliminary report early in the marking process will ensure that you are aware of the issues that might come up before the buyer reviews the information. In fact, if you can provide the buyer with this information prior to them making an offer, all the better.
- Inspections: The sales contract will specify the types of inspections the buyer will conduct and when they must be completed. As a seller, you will need to provide reasonable access to the property for the inspections. Along with simply scheduling access, you will also want to be informed of the results of the inspections. In particular, you will want to be informed if the buyer asks for any modifications to the contract terms such as a price change, a request that a defect be repaired or if they will require additional inspections. Inspections are the most common reason that a real estate transaction is not completed. Since your property is considered to be “off the market” during the inspection period, you will want to be informed immediately should the buyer decide to not complete the sale for any reason. Not completing inspections on time, or not completing them at all, is considered the same as waiving the inspection or the buyer’s right to rescind the offer because of the inspection.
- Septic inspections: Septic inspections are a special type of inspection. NWMLS contracts and local custom call for the seller to pay for a septic pumping and inspection as part of the sales process. Most inspections are paid for by the buyer. As seller, you will need to schedule the pumping and inspection within the time frame allowed by the contract and you will want to follow up with the buyer after providing them the inspection report. If a seller does not complete any of these tasks according to contract deadlines, the buyer can rescind their offer. If the buyer does not respond to notices and reports according to contract deadlines, then it is considered the same as accepting the results.
- Financing: The financing contingency is the one that can be the most problematic. This is because the financing process takes the longest period of time. It also involves privacy issues for the buyer, so as seller, you have little visibility into the status of the process. NWMLS financing addendums do allow the seller to periodically ask for status updates as well as set deadlines for the buyer to complete the financing process. As a seller, you will want to follow up on the status and be aware of any delays or lack of willingness to provide updates as this may indicate problems with financing. After a certain period of time (typically 30 days) the seller may notify buyer that they have the right to cancel the contract after three days if the buyer does not waive the financing contingency. After those three days the seller may cancel the contract if the buyer has not waived the contingency. Even if the buyer has waived the contingency, that does not guarantee that the buyer will obtain financing. It simply means they cannot use lack of financing as a reason to cancel the contract and have their earnest money returned.
- Appraisal: An appraisal may be part of the financing contingency, or its own contingency. As part of a financing contingency, this task is under the same deadlines (note that it is important to look at deadlines for parts of a contingency and the overall contingency to make sure they work together, because timelines can overlap, causing confusion). As a separate contingency, an appraisal will have its own timeline. The contingency deals with the situation when the appraised value is lower than the purchase price. In that case, the seller can opt to lower the price to the appraised value, or as mentioned earlier, pay for a reappraisal. Typically, the seller will either agree to the price change, or refuse, in which case the buyer will almost always cancel the contract. On rare occasions, the buyer may bring additional cash to the transaction so that the lender can make a smaller loan that is based on the appraised value.
- Closing: In most cases, the buyer will be given ownership and possession of the property on the same day as the closing. In a few rare instances, there may be a delay so that you, as the seller, can move out your possessions, but only after the sale has been completed. Typically, you will need to make sure you are able to move out all of your possessions by the closing date. Standard phrasing in the sales contract will give the buyer ownership of anything you leave behind unless special arrangements have been made.
These are just some of the contingencies of which to be aware and on which to follow up. Each contract is different, so be sure to create a list of contingencies that apply to your specific transaction. Contact Tellus Real Estate Solutions if you would like us to provide you with with these types of review and follow up services.