Contracts & Closings
When selling a FSBO, the first step is the Buyer and the Seller must enter into a contract known as a purchase agreement. The purchase agreement details the terms of the sale and the responsibilities of both the Buyer and the Seller. A Seller and a Buyer must realize that the terms of a purchase agreement are negotiable between the parties, so that they enter into the negotiations realizing that once the document is signed they are bound by the terms of the purchase agreement. A Buyer and a Seller have the ability to enter in to the purchase agreement and a form purchase agreement can be found here, however they also may want to get advice from a real estate attorney if they feel they need more guidance.
In the State of Ohio along with the purchase agreement, there is also a residential disclosure form and a lead paint form that needs to be filled out by the Seller and provided to the Buyer at the same time that the purchase agreement is finalized and signed. There are certain exemptions to filing out a residential disclosure statement as provided in Ohio Revised Code Section 5302.30. A residential disclosure form and a lead paint form can be found here.
There are several inspections that a Buyer may opt to do in the purchase agreement such as a general inspection, radon inspection, septic inspection etc. Should the Buyer choose to have an inspection done, then the Buyer and the Seller must make sure that the terms of the contract take in to consideration the potential results of the inspection(s), whether good or bad. In most situations, the contract will give a definitive amount of time for the inspection to be done and then once the results are available there is usually a deadline in which the Buyer has to accept the results or not and the Buyer usually must put the acceptance or denial in writing within a certain time frame.
The cities, townships, etc. in Ohio vary as to whether or not they require a point of sale inspection, septic inspection or some other type of inspection prior to the sale. The Buyer and Seller should make sure that they call the city, township, etc (the title company should also be calling the city, township etc) to verify the need for any inspections prior to closing the transaction. For example if a city requires a point of sale inspection, they will require the Seller to go the City Hall to pay for the inspection up front and the inspector must go out to the property prior to being allowed to transfer. The Inspector will inspect the property and may require either work to be completed prior to sale or possibly funds to be held or both. The requirements of the cities and the various inspections may take some additional time so the Buyer and Seller should take that in to consideration and make sure that they are proactive regarding this matter.
Once the purchase agreement is signed by both parties, the contract is sent to the title company for them to do the exam to see what encumbrances and liens are on the property and verify the correct owner of the property along with the correct legal description. A title commitment is the name of the document that the title company issues detailing the result of the exam on both the property and the Seller. The title company will confirm the requirements necessary to close the transaction and the title company is usually requested to issue an owners policy and possibly a loan policy. The actual coordination of the closing is done by the escrow company but most of the time the title company is usually completes the escrow as well. A lender may be the escrow agent but that is usually the other option for the escrow agent.
In NEO, the escrow process is the custom that is used to handle the actual closing of the transaction and usually (although not always) the title company is also the escrow agent. The escrow process is where a non-interested third party coordinates the closing process between the Buyer and the Seller. The escrow agent will clean up the title issues detailed in the title commitment including but not limited to current owner encumbrances and liens. The escrow agent will sign the Seller(s) and collect all necessary documents to close the transaction and also sign the Buyer(s) and collect all of the Buyer’s documents including all of the loan documents signed.
Once the escrow agent has completed the coordination of signing the Seller(s) and the Buyer(s) and completing all lenders requirements that are necessary, the new deed transferring title and potentially a mortgage will be officially filed of record and the property will be officially transferred from the Seller to the Buyer upon title transfer. The escrow agent will disburse the funds as directed and pay off any outstanding liens of record in order to give the Buyer clear title.
The last thing that the escrow agent will do is call the Buyer and Seller to give them the news that the property is now officially the Buyers. The purchase agreement will dictate actual possession of the property by the Buyer which may or may not be on the title transfer date.