Ask Phyllis!

Home Selling:
When to Start Packing?

Dear Phyllis,
After two months on the market, we finally accepted an offer and started escrow.  Having lived in our home for more than 10 years, we have a lot of stuff and were hoping to finish packing. But our agent advised us that it is too soon as there are contingencies.   The buyers have an inspection and loan contingency.  Can you explain contingenices and how it relates to the buyer’s deposit.  At what point can we keep their money if they don’t complete the deal.      Anxious to get going

Dear Anxious,
Unfortunately the home selling process can be filled with negotiations. Initially you negotiate the selling price, closing and possession dates, etc.  Sometimes during the inspection period additional repairs or credits to the buyer are negotiated.  In a strong seller’s  market there typically isn’t much renegotiating after the buyer’s inspection unless major (expensive) defects are uncovered.

If the appraisal comes in low, this can be another time for renegotiating.  The bank bases their loan to value ratio (LTV) on the selling price or appraised value – whichever is lower.  If a buyer is making a 20% down payment and the appraisal comes in less than the selling price, the buyer will need to increase his down payment.  Assuming a $1,000,000 purchase (20% down payment, the bank will lend $800,000), but with an appraised value of $975,000 (20% down payment, the bank will now lend just $780,000).  In this instance if the buyer doesn’t have the additional $20,000 to add to his down payment, he may be unable to obtain a loan.  A price renegotiation may be necessary or assuming the buyer had an appraisal contingency the buyer can opt to cancel escrow and have his initial earnest money deposit refunded.

Once the buyer removes their investigative contingency you can breathe a sigh of relief.  Have your Realtor® follow up with the buyer’s lender regarding any potential loan or appraisal issues and then follow your Realtor’s® advice as far as finishing up the packing. Your agent’s advice to wait until these contingences are waived is wise.

Not until your buyer removes all contingencies in writing is their deposit at risk.  Depending on what you and the buyer outlined in the purchase contract determines the intricacies of keeping the buyers deposit. But this too is likely a further negotiation. Although the money is with escrow, escrow cannot release the deposit to either party without each party’s written authorization.

  Phyllis Harb