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.
A
sale 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.
- A
growing percentage of transactions involve a home inspection,
or a physical review of the home by a trained and independent
observer.
- 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.
The
REALTOR typically arranges required inspections and helps the
owner prepare for closing.
When
should you close?
With automation now available, closings can occur within a week
in some areas -- 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 sale agreement has been signed.
What
happens?
Closing -- or "settlement" or "escrow" as
it is known in some areas -- is essentially a meeting where the
closing agent (the party who conducts settlement) takes in money
from the buyers, pays out money to the owner and makes sure that
the purchaser's title is properly recorded in local records along
with any mortgage liens.
The closing agent reviews the sale agreement to determine what payments
and credits the owner should receive and what amounts are due
from the buyer. The closing agent also assures that certain transaction
costs are paid (taxes and title searches).
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. Your REALTOR
can discuss your agreement and the steps which must be taken to
complete the transaction.
The closing agent will handle both the settlement papers and related
documents.
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