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FROM CONTRACT TO CLOSING
Since local real estate practices vary from area to area, the following is a step by step explanation of the purchase process in the general New Orleans area.
PURCHASE AGREEMENTS
WRITING THE PURCHASE AGREEMENT
The Purchase Agreement or Contract is usually prepared by a Realtor. A written contract signed by both buyer and seller constitutes a legal, binding agreement.
1. INCLUSIONS The Purchase Agreement should list all personal property, or moveable items, that the parties agree to include in the sale. Any items that are not permanently affixed to the real property constitute a moveable. Examples are window coverings, light fixtures, mirrors, etc.
2. DATES All Purchase Agreements must have an acceptance date, which is the date that inspections and financial contingencies relate to.
3. ACT OF SALE DEADLINE 30 to 60 days from acceptance of the contract is the average time it takes to close a sale. The Purchaser should check with his chosen lender in advance of writing a contract to determine the time needed for obtaining financing.
4. MERCHANTABLE TITLE Should there be any title problems, most contracts call for an act of sale extension of up to 60 days to allow the Seller to have curative title work done. If more time is required, both Purchaser and Seller must agree in writing to an additional extension.
5. DEPOSITS A deposit is a percentage of the purchase price, and can be a combination of cash and promissory or demand note. The listing Broker holds the deposit in a non interest bearing escrow account until the act of sale. If any contingencies cannot be fulfilled, the deposits are returned upon execution of the cancellation of the purchase agreement by all parties.
6. FINANCING If the purchase of the property is contingent upon the purchaser obtaining a loan, all terms of the loans to be procured by the purchaser should be included in the agreement. The purchaser must make good faith loan application within the specified time. Should the purchaser be unable to obtain a loan commitment by the deadline stipulated on the contract, the contract may be declared null and void with all deposits returned to the purchaser.
7. OCCUPANCY A purchaser usually obtains occupancy of the property on the date of act of sale.
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8. PRORATIONS Real estate taxes and any property rentals are prorated at the act of sale. Property taxes are paid in advance in some parishes, in arrears in others.
9. PROPERTY DISCLOSURE The Seller usually provides a purchaser with a written, signed disclosure with all information pertinent to the condition of the property.
10. INSPECTIONS The Purchaser should have the property thoroughly inspected, at his expense. Should repairs be called for, the Purchaser has the option to accept the property in its present condition or negotiate further with Seller.
11. HOME WARRANTY Home Warranty Protection Plans are sometimes offered by a seller, but can also be obtained by the purchaser through a Realtor. The cost depends upon the size of the property, the service fee per repair visit and the inclusions to the policy.
12. LEAD BASED PAINT DISCLOSURE All contracts on properties built prior to 1978 must contain a Lead Based Paint Disclosure in which the Seller discloses any known lead based paint or reports relating to sale.
13. “AS IS” CLAUSE It has become commonplace for a Seller to negotiate an “As Is” Clause (Waiver of Warranty and Redhibition Rights) into the sale of the property. This clause does not prohibit a Purchaser from making inspections and becomes effective only upon the close of the sale.
14. PREDICATION CLAUSES In the event that a Purchaser must condition his offer on the sale of his existing home, a predication on the sale of the existing home can be negotiated. There are two types of predications, open and closed. Open predications, which are more common, give the Seller the right to continue to market his property and if another acceptable offer is made on the property, the Purchaser will have a determined number of hours in which to remove the contingency or have their offer declared void by the Seller.
FINANCING
1. LOAN APPLICATION A Purchaser is in a better negotiating position if he has been pre-qualified or pre-approved by a lender before making an offer. In any case, upon acceptance of a contract, the Purchaser must make good faith loan application and provide the lending institution with all required documentation for the loan within the period stipulated on the contract.
2. POINTS Either the Purchaser or the Seller may pay the points and this should be negotiated in the contract. There are two types of points, discount and origination. One point represents 1% of the loan amount. The Purchaser should know the rate and points for his loan before negotiating a contract. Page 3 of 4
3. LOAN APPROVAL Local conventional loan approval may take 30 to 45 days to obtain. The lender arranges for the appraisal, the credit report, income verification, etc. Obtaining a formal loan commitment constitutes loan approval.
CLOSING THE SALE
1. TAXES There are no state real estate taxes, only local property taxes. The mileage rate is a rate per thousand of assessed value that is used to compute the tax due. The Orleans Parish mileage rate is 170.04, Jefferson Parish ranges from 96.47 to 110.68.
2. FIRE AND EXTENDED COVERAGE INSURANCE Lenders require fire and extended coverage for at least the mortgage amount. Flood insurance is required if the property is located in certain flood zones.
3. WOOD DESTROYING INSECT REPORT Most Lenders require a Wood Destroying Insect Report stating no active infestation of termites, beetles, etc., within a stipulated number of days prior to act of sale. On new construction, a soil treatment certificate may be required.
4. TITLE INSURANCE A lender’s title insurance policy is usually required which insures the lender against title problems. A Purchaser may purchase an owner’s policy for an additional premium.
5. PRIVATE MORTGAGE INSURANCE If the loan to value ration is greater than 80%, most lenders require Private Mortgage Insurance.
6. POWER OF ATTORNEY If all Purchasers are not available to attend the closing in person, a power of attorney must be arranged with the closing notary in advance.
7. SURVEY Some lenders do not require a new survey and the Purchaser may choose whether or not to have a new survey done. Minor encroachments are commonplace in the New Orleans area, particularly in the older areas of the city.
8. CLOSING COSTS Closing costs vary from lender to lender and notary to notary. An estimate can be obtained at the time of loan application.
OTHER ITEMS OF INTEREST
1. HOMESTEAD EXEMPTIONS After the title has been recorded, usually within 4 to 6 weeks, the notary will send the title to the Purchaser. At that time, the Purchaser should contact his Assessor and apply for a Homestead Exemption.
2. COMMUNITY PROPERTY Louisiana is a community property state. Page 4 of 4