Working Toward a Closing
Accepting an offer is the beginning of the closing process. Ask me many questions as possible regarding what happens next. The questions below are a good place to start.
· Once an offer is accepted, what are my obligations and how do I proceed?
· What do I need to be aware of regarding the buyer’s inspection period?
· What other inspections by the buyer might take place?
· Who draws the Purchase & Sale Agreement?
· When will the Purchase & Sale Agreement be ready to sign?
· When will the rest of the deposit be due and who holds the money?
· Who arranges the actual closing?
· What are “closing adjustments”?
· Where will the closing take place and will I need to be present?
It might seem as though once a sale agreement has been signed that the selling process is complete. Not only is it not over yet, but some of the most complex aspects of a real estate transaction now begin.
The sales agreement sets not only a purchase price for the home, but also a series of terms and conditions. For instance:
· Contracts routinely depend on the ability of a buyer to obtain financing, which is why most sellers prefer buyers with preapproval letters from lenders.
· Most all transactions involve a home inspection, which is a physical review of the home by a licensed inspector.
· Lenders will establish numerous conditions before granting a loan. They will want a title exam, title insurance to protect against title errors, termite inspections, surveys and an appraisal to assure that the home has sufficient value to secure the loan.
Typically I arrange the required inspections and help you prepare for closing.
When should you close?
With automation now available, closings can occur within a few weeks -- at least in theory. In practice, it takes time to arrange financing, conduct inspections, obtain appraisals, locate replacement housing, contact movers, pack and actually move.
While instant closings are not practical, neither are closings too far in the future. The problem with closings much past 60 days is that loan rates are difficult to lock in. If mortgage rates go up, it's possible that the buyer will no longer be able to afford the home and thus the deal may fall through.
The result of these considerations is that most homes close 30 to 45 days after a sales agreement has been signed.
The Closing -- or "settlement" or "escrow" as it is known in some areas -- is essentially a meeting where the buyer’s attorney acting as closing agent (the party who conducts settlement) takes in money from the buyers, pays out money to the seller’s attorney and makes sure that the purchaser's title is properly recorded in local records along with any mortgage liens. Note that “Title Companies” -- prevalent in other sections of the country – do not exist in Hampshire or Franklin Counties, therefore your attorney and the buyer’s attorney work together to close the property.
Both the buyer’s and seller’s attorneys review the sale agreement to determine what payments and credits the owner should receive and what amounts are due from the buyer. They also assure that certain transaction costs are paid (taxes and title searches. etc).
Closing is also the time when "adjustments" will be made. For instance, suppose you've pre-paid taxes four months in advance. In this case, the closing agent will compensate you for the prepayment at closing by having the buyer pay you additional money.
It could also work in reverse. If you are behind on property taxes, the closing agent will reduce the money due to you at settlement by the amount of the unpaid taxes.
How do you prepare to sell?
It's important to look at the sale agreement and review your obligations. For instance, if you have agreed to paint a room or replace the dishwasher, such work must be completed before closing. I can discuss your agreement and the steps that must be taken to complete the transaction.
The buyer’s and seller’s attorneys will handle both the settlement papers and related documents.
Survival Guide to a Real Estate Closing
The closing is the end of the lengthy process of buying a house. It often refers to the day you receive the money and sign over the deed and the keys.
Here are some points to consider:
· If you are moving out of a house that you are selling, you may be juggling two closing dates. Most sellers need the cash out of the first house to pay for the second house, so your attorney has probably scheduled the two closings in the right order.
· Mortgage considerations. For any new mortgage being obtained by the buyer, be cognizant that the closing date needs to be set before the buyer’s lender's commitment -- or any interest rate lock -- expires.
· Utilities. In most cases the staffs of the two attorneys will get the final bill from the various utilities. It’s customary that I as your agent will be reading the gauge on the oil tank and giving that information to the attorneys so that you may receive reimbursement for any remaining oil. Typically, your electric company is the only service that requires the customer to make direct contact. Just call them and tell them you are moving and to send you a final reading.
· Closing time. As you are selling, your part of the closing is minimal. You are probably signing over the deed at your attorney’s office a day or two prior to the actual closing by which time you’ve started your vacation. Since what we call the closing is in part just the buyers meeting with their attorney to sign mortgage papers, which you will not likely be attending, and the two attorneys meeting afterwards, perhaps at the Registry of Deeds, to exchange monies for deed.
· Moving. If you plan to move the day you close, schedule the paperwork as early in the day as you can.
· Yearend. If you are scheduling a closing at the end of the year, keep taxes in mind. Any interest or other fees paid before the New Year can become deductions for this year's taxes. Check with a tax adviser for the timing of any other deductions.
Summary of Helpful Information on Closing Procedures
Stepping from Contract to Closing
Real estate transactions are often different in every part of the United States, as well as within the counties within each state. Here in our section of Western Massachusetts attorneys for buyers do title searches and acquire title insurance.
The Initial Offer to Purchase and subsequent Purchase & Sale Agreement
Although the initial Offer to Purchase is written and negotiated by the agent, typically the ensuing Purchase & Sales Agreement is written the attorneys for the buyer and the seller. Sometimes they are written by we real estate agents using standard forms provided by the Massachusetts Association of Realtors. These "fill in the blanks" forms were developed by attorneys and comply with our state laws. But more frequently – at least in Hampshire and Franklin counties -- they are written by the attorneys.
Home Inspections, Contingencies
As we have discussed before, home inspections normally take place after the contract is accepted by all parties.
Inspections are typically paid for by the buyer, with the exception that the seller pays for a Title 5 inspection, if required, and the fire department smoke and carbon monoxide detector inspections.
· Contingencies for basic home inspections and pest inspections are part of the main body of the initial offer as well as the Purchase & Sale Agreement. Dates are inserted to indicate when buyers will complete inspections and when requests for repairs, if any, will be given to the seller.
· Contract contingencies for some types of inspections, such as those for septic systems and radon levels, are added by including a special addendum. The same is true for many other contingencies, such as mortgage appraisal requirements, buyer possession before closing, and more.
· Other standard contingencies include a description of items to remain in the home, or to be removed prior to closing.
Although not required by law at this time, most sellers and their agents furnish a residential property disclosure that offers their knowledge with the home and the condition of all mechanical systems. In most cases it is wise to do so as buyer’s are suspicious of sellers who refuse to provide a Seller’s Disclosure.
Most lenders require a rudimentary survey, which is paid for by the buyer. If a formal survey has been done recently or at some time in the past, it is available to the buyer as it is a matter of public record.
· Attorneys do title searches, acquire title insurance for buyers, and handle the closing transaction
· Attorneys and agents work with lenders to coordinate the closing, making sure everything is handled on time.
· Attorney for the seller prepares the deed for you as seller to sign.
· Buyers and sellers respective each have an attorney of their choice. Different attorneys are mandated so that each party has unbiased representation if problems develop that require negotiation.
Typical Home Seller Expenses (not meant to be complete)
· Deed preparation (attorney fee)
· Tax stamps, an excise tax based on sales price
· Prorated share of: property taxes, association dues or similar fees
· Real estate commission
· Fees associated with loan payoff
· Any costs you've agreed to share with the buyer
Typical Seller's Step-by-Step Progression (summary of major points only)
1. Buyer makes offer, seller accepts (that sounds easier than it actually is!)
2. Buyer's earnest money (good-faith deposit) is placed in the listing agency's state-monitored escrow account
3. Lender orders appraisal
4. Home inspection is ordered by buyer and any repair issues are negotiated with the seller
5. Buyer orders termite inspection (should be within 60 days of closing)
6. Survey is ordered
7. Secondary deposit from buyer is placed in escrow
8. Purchase & Sale Agreement is signed by both parties
9. Fire department comes to inspect smoke and carbon monoxide detectors
10. Buyer applies for hazard insurance and the information goes to the lender and closing attorney
11. Nearing closing date, seller arranges for electric utilities to be discontinued. Buyers must call utility directly to have account put in their name
12. Closing takes place at the office of the buyer's attorney. The seller's attorney has forwarded signed deeds to the closing attorney. Seller does not typically attend any closing
13. Buyer gives his or her attorney certified funds to pay for closing and signs loan papers and other required documents
14. Attorney records new deed at the courthouse and disperses funds due to all parties