Whether you use a real estate agent or not when selling or buying a home or other property, you should at least be aware of what occurs during the closing process. A closing takes place after an offer has been accepted and all the paperwork and other conditions have been met. Before the transaction is completed and the property changes hands to you or to the new owner, however, there are a number of steps in the closing process. The following are 7 steps in closing a real estate deal.
An escrow account is one held by a third party to the real estate deal. There are escrow companies that handle the monies that are deposited such as the earnest money or deposit. Certain instructions are given along with the funds and other documents necessary to complete the transaction. The attorney representing the seller where there is no financing by the buyer can hold the deposit money in escrow and there are usually no fees associated with the attorney holding the deposit money in escrow. Typically, the real estate agent will also hold deposit monies in escrow.
By having a neutral third party handle the funds and documents, it prevents any of the parties to the transaction from absconding with the money or engaging in other irregularities until the deal is finally consummated.
Escrow also has costs involved if you are using an escrow company. You should review the escrow company’s request for fees pertaining to administrative, application, email, processing and other expenses that are not explained and which may appear to be merely piling on. You can ask that certain fees be waived or reduced. Consider comparing costs among various escrow companies.
2. Home Inspection
Although not mandatory, few buyers dispense with the home inspection since you do not want to merely rely on the owner’s assurance that the home is free of any material defects. If you do find a major problem or have a concern, you can ask the seller to repair the problem or reimburse you for the repair. You should have a home-inspection contingency in your offer so that you can back out of the transaction should a major flaw be found or the seller refuses to remedy it.
3. Pest Inspection or radon inspection
A home inspection does not include a pest or radon inspection since only an expert can usually determine if termites or other wood-destroying insects are present as well as other unacceptable levels of radon gases. Should pests or unacceptable levels of radon gases be found, the buyer may renegotiate the purchase price or may request that the seller pay to eradicate them. Your lender will also insist that the problem be remedied before you can close. Your offer should also include this as a contingency.
4. Title Search and Title Insurance
Before the deal can be completed, a title search is customarily performed to look for any cloud on the title, which can be liens or other claims to ownership to the property. Other clouds on the title can be errors in the legal description, improperly recorded documents, forgeries, easements, assessments, restrictions on use of the property, taxes, and judgments. These must be dealt with before the property can be sold or refinanced.
Title insurance protects you from any claims because of these defects and benefits both buyer, seller and the lender. After the title agent or attorney begins the title search, a preliminary report is issued for review and approval.
5. Remove Contingencies
Contingencies are preconditions that must be met or taken care of before closing. Along with the house passing home, pest, radon or other inspections, other contingencies include obtaining affordable financing, the appraisal on the property appraising at the sum of the purchase price, the seller fully disclosing major damage or flaws and/or the seller agreeing to pay for needed repairs if those were agreed as contingencies.
These contingencies are in writing and they usually must be met by a certain date before you can close escrow. In some cases, you can allow the contingency dates to pass so long as the matters are being actively addressed but extensions are strongly recommended and favored.
Do a final walkthrough before the closing. Chances are you have not seen the house for some time since the inspection and you want to ensure that no damage has occurred since you last saw it and that what the seller may have promised to include in the transaction such as playground equipment or a chandelier is still on the property.
7. Fund Escrow and Sign
Funding escrow means depositing the remainder of your down payment and paying the closing costs. Usually, banks or other lenders require you or your representative to attend the closing to show proper identification and sign all the documents. It is strongly recommended that you have an attorney. The paperwork can be voluminous and though much of the language is boilerplate, you do want to be sure that each page is explained to your satisfaction. Look to see that the interest rate you agreed to is indicated and there is no prepayment penalty for paying off your mortgage ahead of schedule. Compare the closing costs to what were estimated or promised.
Retain Deborah Gold-Alexander, Attorney at Law
It is usually best to have either a real estate attorney who can properly advise you, protect your rights and ensure that you are not being taken for a ride on costs. Contact Deborah Gold-Alexander today for a consultation regarding any real estate transaction.