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What You Need To Know About Buying a Home: Part Three

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to our inbox.

You've done the research. You know what kind of home you want. Now you and your real estate agent have decided to make a move on a property you'd like to call home. Here's what's next.

Doing your Due Diligence on a property

There are two things you're interested in here, and they're usually combined in one package to make the transaction go faster. There's the disclosure report, which is tedious but must be read. The other is the pest report, which is an estimate, both in scale and in terms of the cost to repair, of damage caused by termites, dry rot and other issues. Sometimes it's just a few boards in the deck; other times long-time deferred maintenance will require many thousands of dollars to fix. Some serious sellers will have cleared the pest report by having the work done in advance, and that will be included in the disclosure. Make sure that all the work done in the house has been executed with permits: a foul-up here could hold up the closing or haunt you down the road when you want to sell.

And of course, when it comes to making an offer, schedule your own inspection. If you accept a referral here from either agent in the transaction, follow up by checking the Better Business Bureau rating/online reviews or ask for a few satisfied customer referrals.

What are Exclusions and Contingencies?

A contingency is one or many things that needs to be eliminated before the property can close escrow. Exclusions are simpler: Since whatever's attached (light fixtures, flat screen TV brackets, curtain hardware) convey with the house, an exclusion might be Grannie's Tiffany chandelier. Or more simply put: "Here's the house and what comes with it; but this is what we're taking with us." Contingencies can be more complicated, but sometimes they're an exit clause for either party, like a close date by when the seller will have turned 55, or the buyer's financing falling through at the last minute. Shit happens, and you may find yourself in the position of having to go through with the sale or lose your deposit. Deposits, also known as earnest money, are paid once the seller agrees to your offer, but before the escrow process/investigation period begins (the amount varies). Your Realtor will have a list of standard contingencies, but ask questions and consider your own situation before signing off on anything.

Escrow

In San Francisco, escrow companies handle the nitty-gritty of paperwork, title insurance and the distribution of funds as agreed in the sales contract, plus recording the deed of sale. You write the checks.

Be prepared before you make an offer

It's simple. Have your mortgage pre-approved, have the deposit/down payment in the bank along with enough money for closing costs, title insurance, moving costs, and some funds (or a credit card) allocated for those small but critical items that come up, like replacing light fixtures that seller did not include, or those blackout shades you didn't realize you'd need. And figure out how much time and you'll need to get the place up and running and ready to move into, because you may have to pay both a mortgage and rent if you can't live in the home immediately.

What's all this going to cost beyond the offer amount? Closing costs are hard to pinpoint in the abstract, but think 10% of purchase price as an estimate. You can also check Bank Rate for a by-state closing cost estimate tool. Your lender will have a list of what costs what, including the mortgage initiation fee. Spend some quality time with the list of closing expenses before you sign off on them.

Next up is our final installment of the buying portion of Curbed University. It'll cover more on escrow and finance.
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