A residential real estate transaction process runs through a predictable sequence: a signed purchase contract, a due diligence window for inspections, appraisal, and title work, final loan approval followed by a mandatory three-day review of your Closing Disclosure, the closing meeting where documents are signed and money moves, and recording of the deed at the county. The Statute of Frauds requires every contract for the sale of real property to be in writing and signed, so none of this proceeds on a verbal agreement.1Legal Information Institute. Statute of Frauds Each stage has its own deadlines, its own paperwork, and its own ways to lose money if you miss something.
Signing the Purchase Contract
Everything starts with a written purchase agreement. It identifies the buyer and seller by legal name, describes the property using its recorded legal description rather than a street address, sets the price and closing date, and lists every deadline the deal will run on: inspection period, financing deadline, title review, and anything else the parties negotiated. The contract also spells out which fixtures and appliances stay and which the seller takes. Disputes over a refrigerator or a chandelier are more common than you would expect, and the time to settle them is before signing.
The buyer backs the contract with earnest money, usually one to five percent of the price depending on local custom and how competitive the market is. That deposit goes into escrow with a neutral third party, typically the closing agent or an attorney. If the deal closes, the money is credited toward the down payment or closing costs. If the buyer walks away without a valid contractual reason, the seller can usually keep it as liquidated damages for the breach.2Freddie Mac. What Is Earnest Money and How Does It Work That is why the contingency clauses are the most important section of the contract to understand before you sign.
Seller Disclosures
Sellers have a legal duty to disclose known defects. The specifics vary by state, but most require a written disclosure form covering the condition of major systems, structural problems, water damage, pests, and environmental hazards. Hiding a known problem does not make it disappear. It creates liability that can follow the seller for years after closing.
One disclosure rule is federal and applies in every state. If the home was built before 1978, the seller must give the buyer an EPA-approved lead hazard pamphlet, disclose any known lead-based paint or hazards, and hand over any reports or testing records they have. The buyer also gets at least ten days to arrange a lead inspection, though the parties can adjust that in writing.3eCFR. 24 CFR Part 35 Subpart A – Disclosure of Known Lead-Based Paint and Lead-Based Paint Hazards Upon Sale or Lease of Residential Property
Contingencies That Protect Your Deposit
Contingencies are the contractual escape hatches. Each one gives the buyer a defined window to back out without forfeiting the earnest money. The four that matter most:
- Inspection contingency. The buyer gets a set number of days, often seven to fourteen, to hire a licensed inspector. If the report turns up problems the buyer cannot accept, they can negotiate repairs, ask for a price reduction, or cancel.
- Financing contingency. If the mortgage falls through, the buyer gets the deposit back. The clause usually specifies the loan type, a maximum interest rate the buyer will accept, and a deadline of 30 to 60 days for approval.
- Appraisal contingency. If the property appraises for less than the contract price, the buyer can renegotiate or walk. Without this clause, the buyer has to make up the gap between the appraised value and the price out of pocket.
- Title contingency. The seller must deliver clear title. If title defects cannot be resolved, the buyer can exit.
In a competitive market, buyers sometimes waive contingencies to make an offer stronger. That is a calculated gamble. Waiving the financing contingency means you owe the seller the earnest money if your loan falls apart, regardless of the reason. Know exactly what protection you are giving up before you drop any contingency.
Inspection, Appraisal, and Title Work
The inspection is your chance to find out what the listing photos did not show. A licensed inspector walks the heating and cooling, electrical, plumbing, roof, and foundation, and produces a written report of every deficiency. The deadline in your inspection contingency controls how long you have to act on it. You can ask the seller to make repairs, lower the price, or offer a closing credit. The seller does not have to agree, but if talks stall, you can invoke the contingency and leave with your deposit.
The appraisal does something different. It protects the lender, not you, by confirming the property is worth what they are being asked to lend against. A licensed appraiser measures the home, documents its condition, and compares it to recent sales of similar properties nearby. The result goes to the lender in a standardized report.4Fannie Mae. Uniform Residential Appraisal Report If the appraised value comes in below the contract price, the lender will not cover the shortfall. Your options are to negotiate the price down, bring extra cash to closing, or cancel under the appraisal contingency.
Title work runs on its own track. A title search traces the chain of ownership through public records to confirm the seller has the legal right to sell. It surfaces anything that would block a clean transfer: unpaid property taxes, contractor liens, judgments against the seller, boundary disputes, or old mortgages that were never properly released. The title company or attorney issues a preliminary report listing every exception that needs to be cleared before closing. Some defects clear in a day with a recorded release. Others, like an estranged co-owner or a missing heir, can push closing back by weeks. The seller is generally responsible for resolving these, and the title contingency protects you if they cannot.
Title insurance picks up where the search leaves off. Even a careful search can miss forged documents, recording errors, or undisclosed heirs who surface years later. The lender’s policy is required by virtually every mortgage lender and protects the lender’s security interest for the life of the loan. The owner’s policy is optional and protects your ownership and equity for as long as you or your heirs hold the property. The owner’s policy is where buyers sometimes try to save money, and it is almost always a false economy. A title claim five years after closing without one means paying for your own legal defense.
Final Loan Approval and the Three-Day Disclosure Period
While inspections and title work run, the lender finishes underwriting. They re-verify your employment, income, credit, and debt to confirm nothing has shifted since the initial approval. New debt, a job change, or large unexplained deposits can get the approval pulled. The lender also wants proof of a homeowner’s insurance policy on the property. No insurance binder, no loan.
Once underwriting signs off, the lender issues a clear to close. Federal regulations then require the lender to deliver your Closing Disclosure at least three business days before the closing meeting.5eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions The five-page document lays out your final loan terms, interest rate, projected monthly payment, and every closing cost to the dollar. Use the three-day window to compare it against the Loan Estimate you received when you first applied, and flag any discrepancy before you sit down at the closing table.6Consumer Financial Protection Bureau. Know Before You Owe – You’ll Get 3 Days to Review Your Mortgage Closing Documents Certain last-minute changes to the loan, like a higher interest rate or an added prepayment penalty, reset the three-day clock.
What You’ll Pay at Closing
Closing costs cover the fees charged by the lender, title company, appraiser, government offices, and other service providers. For buyers, they typically run two to five percent of the loan amount. The exact total depends on the property’s location, the loan type, and what you negotiated the seller to cover. Common line items include loan origination fees, title insurance premiums, recording fees, prepaid property taxes, and prepaid homeowner’s insurance.
Transfer taxes are separate. Most states and some local governments charge them when real property changes hands. About a dozen states impose no state-level transfer tax, while others charge anywhere from a fraction of a percent up to three percent on expensive properties. Who pays depends on local custom. In some areas the seller pays, in others the buyer does, and in many places the parties split it. The Closing Disclosure breaks all of this out so nothing is a surprise at the table.
Prorations are the costs the buyer and seller divide based on how many days each party owned the property during a billing cycle. Property taxes are the biggest example. If the seller prepaid a full year of taxes and closes in June, the buyer owes the seller roughly six months at closing. HOA dues, shared utility accounts, and prepaid insurance can also be prorated. The math is simple, but the number adds real dollars to the buyer’s closing figure that first-time buyers sometimes miss.
The Walkthrough and Closing Meeting
The final walkthrough usually happens the day of or the day before closing. It is not a second inspection. The purpose is narrow: confirm the seller completed any agreed-upon repairs, verify nothing was damaged during move-out, and check that the fixtures and appliances listed in the contract are still there. Raising a problem before the closing meeting gives you leverage. Raising it afterward gives you a lawsuit.
At the closing meeting, both parties sign the documents that make the transaction legally real. The buyer signs the promissory note (the promise to repay the mortgage), the mortgage or deed of trust (the lender’s lien on the property), and a stack of ancillary disclosures. The seller signs the deed. In roughly a third of states, an attorney must conduct or supervise the closing. In the rest, a title company or escrow officer runs it. Signatures are notarized to confirm identity and that the signing was voluntary.
Once everything is signed, money moves. Your lender wires the loan proceeds to the settlement agent, who combines them with your down payment and distributes the funds: payoff to the seller’s existing mortgage lender, commissions to the brokers, transfer taxes to the government, and the balance to the seller. In some states, funds disburse the same day documents are signed. In others, the settlement agent has to wait until the deed is recorded before releasing money, which can push your key-in-hand moment to the next business day.
Recording the Deed and What Comes After
After closing, the settlement agent submits the signed deed and mortgage to the county recorder. Recording creates a public record of the ownership change and establishes the priority of the lender’s lien. Without recording, your ownership is exposed to competing claims from a later buyer, a judgment creditor, or a seller trying to transfer the same property twice. Recording fees vary by jurisdiction, commonly in a range from fifty to a few hundred dollars. Once the deed is on file, you hold legal title, the lender’s lien is a matter of public record, and your title insurance policies take effect. The original recorded deed is typically mailed to you several weeks later.
Tax reporting follows. The settlement agent files IRS Form 1099-S to report the gross proceeds from the sale.7Internal Revenue Service. Instructions for Form 1099-S If you sold a principal residence and certify in writing that the gain falls within the exclusion amount, the agent does not need to file the form. The exclusion itself is substantial: a single seller can exclude up to $250,000 of capital gain from the sale of a principal residence, and married sellers filing jointly can exclude up to $500,000, provided at least one spouse meets the ownership requirement and both meet the use requirement of having lived in the home for at least two of the five years before the sale.8Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Gain above those limits, or sales by owners who do not meet the thresholds, gets reported on the income tax return for the year of sale.9Internal Revenue Service. Topic No. 701 – Sale of Your Home
One boundary worth flagging if you are the buyer: when the seller is a foreign person or entity, FIRPTA requires you to withhold 15 percent of the total amount realized on the sale and remit it to the IRS at closing.10Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests In practice the settlement agent handles the withholding, but the legal responsibility sits with you as the buyer. Failing to withhold when required can make you personally liable for the tax, plus interest and penalties.11Internal Revenue Service. FIRPTA Withholding If you are buying from a foreign seller, make sure the closing agent knows up front. It is not something to sort out after the fact.