Steps To Buying A Home In Washington
Here's a breakdown of buying a home in Washington:
Out Of Pocket Costs: One of the first questions we often hear is, what will be my out of pocket cost to purchase my home? Your total out of pocket cost to purchase a home in WA roughly consists of the following:
• Down payment (Can be as low as $0 out of pocket, but often closer to 20%)
• Closing costs: Around 1.5%-2.5% of loan amount, will vary by lender
• Inspection report: $450-$1,000 (depending on location and size of home along with inspections purchased)
• Appraisal: $600-$1,200, will vary by lender
• Escrow fees: $1,000-$2,000, varies by property
• Title fees: $1,500-$2,500, varies by property
What is a purchase and sale contract? When buying a home, you are entering into a contract with the seller. You are promising to purchase the home for a specific price, on a specific day. You deposit Earnest Money to demonstrate your good faith to purchase the home. We will use specific contingencies to protect you and your earnest money. Below is a general timeline example along with some definitions. Every contract is different and every contract will be written with different contingencies. There are many more, but these are a few of the basics.
Common Terms, Phrases, and Milestones:
Mutual Acceptance happens once the contract is signed by both parties.
Earnest Money: Usually 1-5% (you can always do more or less) of the purchase price that is paid up front and is held in a trust account by the closing agent. Earnest money is skin in the game as a remedy for the seller if the buyer backs out with no legal excuse. Earnest money goes towards your down payment/closing costs, it's nothing additional. Earnest money is generally due within 2 after mutual acceptance occurs unless we negotiate differently.
Inspection Contingency: Period of time, usually 5 days or less, to conduct a home inspection. You are also able to back out of the contract during this period for any reason at all and retain your earnest money. Timeline starts the day after mutual acceptance.
HOA Review Period (For Condo/Townhomes): Period of time, usually 5 days or less, to review any and all HOA documents. On condos, I would rank this contingency higher than even a home inspection. This is where you dive into the financial stability of the HOA, any past, pending, or upcoming special assessments, rules and regulations, etc. Timeline starts after receiving the complete HOA documents.
Title Contingency: Period of time, usually 5 days or less, to look at the chain of title for the home and make sure that there's no unpaid taxes, encumbrances or anything else that will negatively affect your ownership of the property. Timeline starts after receiving the title report.
Financing Contingency: Starts the day of going mutual with the seller and is active until the day of close. This protects the buyer and their earnest money in the event they are unable to secure financing, despite a good faith effort to do so. The underwriting process and appraisal is usually complete by or before 21-days into a mutual contract.
Appraisal Contingency: In the event of a low appraisal, meaning the bank's appraisal value is lower than the purchase price, you have 3 options: to come up with the difference in cash, have the seller drop price to the appraised value, or negotiate and reach a happy medium. With an appraisal contingency, if no agreement can be made with the seller and you are unwilling/unable to cover the gap in cash, you are able to back out and retain your earnest money.
Escalation Clause: An escalation clause ensures that if your offer were to be chosen, you don’t pay more than you need to. An escalation clause has a purchase price, an escalation/interval number, and a ceiling price. With an escalation clause, if your offer is chosen, the listing agent has to provide us with the competing offer as proof.
Ex: If your escalation number was $10,000, and your ceiling price was $1.3M, and the next highest offer’s ceiling was $1.28M, the home would be yours at a final sales price of $1.29M. In no event will you go over the set ceiling amount.
Final Walk-through: Usually done the day before closing. We spend this time to walk through the empty house as all the staging furniture will be taken out by this point. We're making sure that the home is in the same condition as when we first looked at it.
Signing: Signing of your documents will generally occur a few days before closing.
Closing: Usually somewhere around 30 days after mutual, depending on the loan program. It's the day you receive your keys to your new home! After escrow gets the recording numbers from the county around 4-5 PM, the seller will release the keys to the home unless otherwise agreed upon. They do, however, legally have until 9 PM to surrender possession, and may need that time to move. We will know our key exchange plan before closing day.
So, who pays commissions?
Because of changing Washington laws, who pays commissions in in flux. Historically, and still usually, the seller pays both sides of the commission. In most cases, the listing agent negotiates a commission from the seller to be paid to the listing firm. The listing firm then advertises a commission for a broker who brings a buyer. This is often 50% of the negotiated commission. However, Buyers are no required to sign a Buyer Representation Agreement with their Broker which will discussion commission due and terms of payment.
Please let me know if you have any further questions!