What is Involved in Closing a Home Sale?
The closing of a home process can seem daunting if you are a first-time seller. There are many steps to selling your home and expenses that must be taken before the deal can become official.
Knowing what to expect will help you close your sale quickly and with as few surprises as possible. This is everything you need to know about closing a home.
What does it mean to close a house?
Closing refers to the final phase of the home-selling process when documents and money are transferred to the buyer to transfer the property’s ownership.
The closing date is when the property’s ownership is officially transferred from the seller to the buyer. It is an exciting time. From the moment you accept the buyer’s offer, to the closing date, the home closing process involves all steps outlined in your sale contract.
What are the steps for closing a house?
You have accepted an offer from a buyer and concluded negotiations. Congratulations! Here are a few more things to take care of:
Get title insurance by doing a title search
A title search is an examination of public records that reveals who the legal owner of your property is. It’s ordered by your closing agent. The title search will reveal any judgments or claims against the property. These issues need to be resolved before the sale can proceed.
Title insurance protects against past events, unlike homeowners insurance which protects against future events such as a fire. Title insurance will typically cover you if your home has a lien because of unpaid bills.
In a home sale, there are usually two types of title insurance: one for the new owner and one for the lender. Each state and county will determine who is responsible for each policy. Buyers and sellers may negotiate over who is responsible for each cost.
Do a home inspection
Although a home inspection is not required, many buyers insist that it be done to ensure there aren’t any hidden issues with the property. After you accept the offer, the inspection will be performed.
Your agent should be notified if your home needs repairs. To avoid potential problems, your agent may recommend that you get a pre-listing inspection and address any necessary repairs before the home inspection.
A home inspection typically checks the safety, functionality, quality, and design of the features in the house. These are the most important items that a home inspector checks for.
The buyer may ask you to make major repairs or reduce the price to cover costs depending on the terms of the sale contract.
Don’t forget lender appraisal
The mortgage lender will arrange for an appraisal if the buyer plans to borrow money for the purchase. The lender will conduct this appraisal to ensure that the loan amount it is lending is comparable to the value of the house in the event of repossession. The appraiser uses the property’s unique features and comparable properties that were sold in the area.
Lenders are not likely to approve a loan for the amount if your home’s appraised value is lower than the selling price. In this case, lenders may not approve a loan to the buyer for the amount you have requested. This process can be facilitated by your agent or attorney.
Final walk-through
The final walkthrough usually takes place 24 hours before closing. The agent and buyer will go through the property once more to ensure everything is in order.
The buyer will verify that all repairs have been completed, that there is no damage to the property, and that all your belongings have been moved unless you have arranged for them to remain. You will need to correct any issues found by the buyer or your closing may be delayed.
Finalizing the sale by the closing date
Closing is the date that the sale transaction is completed. There will be a lot more paperwork to sign, including the deed to transfer the property to the buyer. Ask your real estate attorney or title company questions about any documents you are unsure of. You have the right of knowing what you are signing.
The closing will be held at the office of your title agent, escrow agent, or attorney. You may not have to attend, depending on where you live. Ask your attorney or real estate agent if attendance is required. If so, you can sign the paperwork in advance. Your agent or attorney will give it to you at closing if necessary.
After all the paperwork is signed and funds are disbursed, the buyer becomes the official new owner.
What should you bring to the closing date?
The closing doesn’t require you much of anything. Usually, all you need is a government-issued photo ID and the keys to your property. You may also need to bring any documents or paperwork that your attorney or escrow agent has instructed.
These documents may include documentation proving that you have completed all repairs requested.
On average, the entire closing process takes 50 days, starting with the acceptance of the offer and ending on the closing date.
A traditional sale will have the buyer’s lender underwriting and initiating the loan. The lender will need to assess the buyer’s eligibility for the loan. This can be a lengthy process. A closing can be delayed by the underwriting process.
According to the National Association of Realtors, nearly one-third of all closings are delayed. Be prepared for this possibility. Title issues, home inspection, and home appraisal problems are all common reasons that delay closing.
What are the seller’s responsibilities at closing?
Each party has to comply with the terms of the sale contract. You will typically be required to:
- If you have not been specifically asked to remain under the contract, remove all of your belongings. Sometimes, major appliances can be negotiated into a deal.
- Repairs that you have been asked to do.
- Before closing, clean the house. It is a good idea to clean the home as you’d like to find it if you were the buyer. (Usually required, unless the home is being sold as-is.
Although these items aren’t usually required, they can be a great idea or a nice gesture to the new owner:
- Notify creditors, acquaintances, and subscription services of your new address. Set up mail forwarding.
- All manuals and warranties that you have for home items, including the HVAC system or appliances, should be collected. They can be left on the counter with spare keys and garage door openers for the buyer.
- To prevent leaks from occurring between when the buyer takes possession of the property and when they move in, shut off the water valves.
There may be additional requirements in some states or municipalities. Check with your attorney or your listing agent. Your state might require a septic system inspection or a certificate for smoke and carbon monoxide detection.
What are the responsibilities of the buyer during closing?
Buyers are usually required to:
- Deposit “earnest money”, which will be used to pay closing costs, into an escrow account. Funds that are not used for closing costs can be kept by a third party up until the closing date.
- Lenders may request additional documentation or information as part of the loan underwriting process.
- Obtain homeowners insurance. To approve a mortgage loan, many lenders will require proof of insurance.
- Arrange utilities to be transferred in their name upon closing.
- Do a final walkthrough.
The closing costs are usually between 1 percent and 7 percent of the final sale price. This is split equally between the parties. The closing costs for home sellers typically range from 1 to 3 percent of the final sale price.
After the closing on the home
When the escrow has paid off your lender, other lien holders, and service providers, the closing is complete, the deed (and buyer’s mortgage, if any), are recorded with the county recorder of deeds, and all other transfer documents are given to the buyer.
You are no longer the property’s owner after the closing of the property. Unless you have a side agreement or a contract, you must give the buyer all keys.
You are expected to move all of your belongings and household items out by this point. You should also leave the house broom-clean at a minimum. As the seller, you can be evicted from your home if you do not reach an agreement with the buyer to allow you to stay for longer. The buyer could also sue you for damages resulting from the breach of the sales contract.
You should discuss a post-closing possession arrangement with the buyer if you are concerned that you may not be able to move out before or on the closing date. This is sometimes known as a “rent back“. This agreement should be requested by the seller as soon as possible. It can be done either during the sale contract negotiation or before closing.
You will be allowed to live in the house for a specified amount of time in return for either daily or monthly rent depending on how long you plan to remain there. In a hot market, you might be able to rent the house out for as long as you want.
Rent should be sufficient to cover the cost of the property, hazard insurance, and real property taxes. Any damage to the property that happens during this period will be your responsibility.
Your lender should prepare and send a release of mortgage to your address within a few days of receiving the full payment for your mortgage loan. The lender may send the original release to an escrow, or directly to the county recording officer for recording. However, it is important to ensure that the release is recorded and returned.
Takeaways
- From the moment you accept an offer for the home, through the closing date (the date on which the property is officially transferred to the buyer), the closing process encompasses everything.
- Closing costs can be a substantial percentage of the sale price. Many of the costs you will incur as a home seller can be deducted from the proceeds from the sale. You won’t have to pay cash if you have enough equity in your home.
- The closing process can take up to 50 days.
selling your home is one of the most important decisions of your life. You want to be prepared. Closing on a house is as important as the home itself. It’s crucial to be aware of what you should do and avoid to ensure that the sale closes quickly.
