In “Step Three: Making an Offer” we discussed how to make an offer on your Dream Home. Now that your offer has been accepted, and the contract, riders and addenda have been signed by both parties, you have what is commonly referred to as an executed contract. At this point you begin the “Attorney Review.” The next week or so is going to be a busy one. The length of the attorney review period is determined in your contract. Typically a week will suffice and extensions are easily negotiated.
If you have not already selected an attorney, we recommend getting a referral from a trusted source, such as your Realtor, or a family member or friend who has had a great experience. Response time from your attorney is tantamount to their reputation. You want someone who will answer your phone calls or get back to you the same day, as you will most likely have a lot of questions (and they may also have questions for you coming from the sellers’ attorney). Having a consistent dialog with your attorney helps the process run smoothly and when making a purchase this large, that is the only way you want it!
Attorney Review Period for a Conventional Purchase
In case you did not read the last entry of the Dream Home Series, we define a “conventional purchase” as a purchase/sale that does not involve a short sale or foreclosed home. During the attorney review period of this type of sale a few things take place:
You hire an inspector to inspect the place. This is very important to do ASAP because anything that they find (and they ALWAYS find something) will need to be addressed during the attorney review period. A good home inspector will give you a detailed report of everything they find, good and bad. Typically, they also walk you through the property after the home inspection is completed to show you any defects they found and offer helpful tips on things you may not know, such as which switch resets your whole house, etc.
Excluding very minor things such as loose cabinet doors, anything they find that costs money to repair is now another thing that may need to be negotiated with the seller. Most often any defects are paid for by the seller or a credit (in the form of a price reduction or closing cost compensation) is given, which makes the process run very smoothly.
There are other instances (such as the seller is selling for less than is owed and needs to come to closing with every penny in their bank account) when the seller will simply not be able to cover any costs for things found in the inspection. Then, it is then up to you, the Buyer, to decide what to do.
There is also the rare occasion when the seller feels they have already given such a low price, that they refuse to throw more money into a place they are selling. The good news is, if you do not agree with the outcome of the inspection, you get your earnest money back and are free to walk away from the deal. Rest assured that most of the time this part of the process does run smoothly. The attorneys from both sides draft up a letter stating what will be done about any necessary repairs and that is that.
Unless you are paying cash, your new Dream Home will need to be appraised by your lender. As many people in Chicago and other markets know, this is sometimes a daunting event. If there have been a lot of foreclosures or short sales in your area, and not a lot of other comparables, there is a small chance your property will not appraise out to your loan amount. As long as your agent did a thorough Comparative Market Analysis before you made your offer, and you stuck to your guns in the negotiation, you should be fine.
Any repairs needed should be done immediately by the seller or whoever agreed to take care of them. This needs to be done and inspected by you before the end of the attorney review period.
Next, your bank will give you a clear to close, which says that the bank has signed off on the loan and you are ready to close.
It is now time for your final walk through. This is where you revisit the property one last time (hopefully) to review repairs made to the issues discovered during the inspection. Once you have done this and given your thumbs up, you may now go to closing confident that you are getting your Dream Home!
Attorney Review Period for Foreclosures and Short Sales
The Attorney Review (A/I) period is very similar for both a foreclosure property and short sale (SS), so we will address them together.
After your offer has been accepted – congratulations by the way because only about 1/8 of all foreclosure/SS offers are accepted – your attorney review period begins. There isn’t too much to do now because, for the most part, 100% of all foreclosures/SS are sold “as-is.”
We highly recommend hiring an inspector before you put in an offer to make sure you understand the extent of the repairs that will need to be made, if any. It is also a good idea to have the place appraised before making your offer because there is nothing like having the appraisal come in way below your loan amount and having to scratch the deal and start all over. Even if you are paying cash, it is important to know if you are buying something for, say $100,000, and it only appraises at $20,000.
At this point your attorney will review the contract and related documents, and voice any concerns he or she may have. After those concerns are addressed and your bank has given you a clear to close, it’s time to schedule your closing date. Congratulations!
* As with all of our Dream Home articles the scenarios are based on Illinois law. There will often be small variations from state to state.