Always Be Closing
Closing refers to the day when all parties gather to sign the final documents that transfer ownership of the house from seller to buyer. The closing process happens over a period of weeks or months, starting when the buyer and seller agree to a contract.
Both buyers and sellers have responsibilities during this period, and mistakes can delay the closing date, cost extra time and money, or even jeopardize the sale.
As always, OpenHomes’ attorneys are available to help you throughout this process, anytime you need it. But to give you a basic understanding of this process, here are the basics you should know about getting to closing.
When you and the buyer have both agreed to the same documents (usually an Offer to Purchase, with additional documents or a counter-offer), you have an accepted offer. It is a binding contract, meaning that neither of you can back out unless you have a valid reason set forth in the contract to do so.
The contract generally specifies a closing date, usually 1-3 months from the offer date, although the actual closing can always be changed by mutual agreement. While buyers are generally responsible for most of the tasks, there are a few things sellers can do to make sure everything is ready for closing.
During this period, if a buyer has included any contingencies in the offer, s/he must move to satisfy them or waive them by their deadlines. Most commonly, the buyer must get his or her financing commitment, which generally requires an appraisal, and sometimes additional inspections or testing, depending on the lender.
The seller must make the house available to the buyer and his or her representatives for these purposes. In most cases, if a buyer fails to act by the deadline, that contingency disappears. If the buyer has included any repairs or conditions in the offer, the seller must take care of those items during this period.
Title Insurance and Escrow
The seller is generally also responsible for selecting and paying for the title insurance company (although this is negotiable), which often acts as escrow agent and hosts the actual closing at its office. Basically, the title company acts as a third party that collects and holds the funds pertaining to the sale of your home.
OpenHomes can help you choose a title company and make sure that everything is ready for closing. For instance, OpenHomes will hold the buyer’s earnest money in our trust account, and we will forward it to the title company or escrow agent in time for closing.
In addition, the title company is responsible for checking the property records to make sure that property can be conveyed and that their are no outstanding claims or liens against the property. The seller is responsible for delivering proof to the buyer that the title is “clear,” generally done through a title insurance policy.
If you still have the title insurance policy from when you purchased your home, you can often get a discount on the new policy when you sell. Ask your title insurance company about this.
Inspections and Testing
These are the most common contingencies that buyers include in their offer. An inspector will conduct a visual inspection of the accessible areas of the house (no opening up walls or ducts) and will go through a checklist to see that things are in working order.
Inspectors may look at the roof, foundation, siding, windows, electrical system, plumbing, mechanicals, and other aspects of your home. Then s/he will produce a report for the buyer with his or her opinions about the condition of the home.
Following inspection, the buyer may give you a copy of the report and ask you to repair or replace certain items, or to lower the sale price. You can agree to some or all of these changes, but the buyer has the right to walk away if they provide notice of defect before the inspection contingency expires.
In some cases, the inspection may result in a smaller, secondary negotiation about who pays for what.
Similar to an inspection, some buyers request testing for particular substances or systems in their offers. Common testing requests include radon, mold, termites, water quality, septic system, or lead.
Any tests must be specifically agreed to in the contract, and like inspection, if a buyer gets an unsatisfactory result, s/he may be able to walk away or request remediation, depending on the terms of your contract.
Any changes that are made to the contract must be agreed to in writing, by both parties in the form of an amendment or a notice. As a seller, you can minimize the risk of buyers claiming defects or problems with your home in a few ways – first of all, make any needed repairs before listing your house, and second, disclose all defects or issues on the property condition report.
Buyers may not claim defects for things they were aware of when they made the offer.
Financing and Appraisal
The other common contingency in an offer is financing. The buyer has the responsibility to deliver a financing commitment to the seller by the specified deadline.
If the buyer cannot obtain financing at the terms set forth in the contract, s/he must provide documentation that financing was unavailable (generally, a rejection letter from a lender). In some cases, sellers may be willing to act as the lender and finance the deal themselves – but this is an advanced option that should not be considered lightly.
Along with the ability for the buyer to get a loan, most lenders require an appraisal (at the buyer’s expense) to ensure that if the buyer defaults on the loan, the lender will be able to sell the house and cover the loss.
Therefore, offers that include financing contingencies often contain separate appraisal contingencies – but they are independent of each other. If the appraisal comes back at less than the sales price, the buyer may try to get you to agree to lower the price.
Remember that the lender’s guidelines may not require that the appraisal be at or above the purchase price – it may only need to be at or above the amount borrowed. This situation is best prevented by making sure the home is priced correctly from the beginning.
Seller Preparation for Closing
Sellers often feel that their major task between an accepted offer and closing is to pack and get ready to move! While this is important, remember that every time a buyer comes to your home – whether to measure rooms, complete the inspection, or walk through, s/he is seeing it again and considering how much s/he wants to buy it.
That means keeping your home clean, organized, and attractive is important even during this period, especially while there are outstanding contingencies that a buyer could use to walk away from the sale.
Thirty days before the closing date notify all utility companies of the final date you’ll be paying for service. Don’t forget to cancel any service contracts you may have, such as lawn care or snow removal. Submit a change of address form to the post office, by mail or online, here: https://www.usps.com/umove.
In the week or two before closing, you need to carefully review the closing statement (also called a HUD-1) from the title company or escrow agent. This document details the flow of money at closing – everything the buyer and his lender will pay, and everything you will pay, and what you will receive.
The responsibility for the various fees, costs, and taxes are outlined in the contract you have with the buyer. Make sure that the amounts are correct, and don’t hesitate to call your title company or your lender if you have any questions about this document.
OpenHomes receives our 1% commission for helping you sell your home at closing, so our fee will be included on this statement, as will all other closing costs.
Generally within three days prior to closing, the buyer will schedule a walk-through of your home. This is the last step before meeting at closing. It is ideal, though not required, if you have moved out by this point, but in any case, you want to make sure that you have set aside basic cleaning supplies so that the house is “swept clean” for the final walk-through and closing.
If you have agreed to transfer certain items with the property (appliances, window coverings, etc.), make sure you have left them where they belong! If you have made repairs or upgrades, you can note that for the buyer.
Make sure you leave garage door openers and passcodes for the buyer, and if you have manuals or instructions or warranties for appliances or mechanicals, leave those as well. The more organized and thorough you are, the more confident the buyers will feel about their decision to purchase your home.
If there has been damage to the home or if the property is not prepared for closing, the buyer can delay closing. Although it is difficult for buyers to break the deal at this stage, you’ll want everyone to feel satisfied that the terms of the purchase contract have been met by the closing date.
Unless you and the buyer have agreed to a different occupancy date, you need to have fully vacated the property by the closing date.
On the closing date, the seller and buyer (as well as their lenders or other professionals representing either party) meet at the agreed upon location to formally transfer title to the property. Your title company or escrow agent should give you a list of anything you may need to bring (such as a cashier’s check if you have expenses that exceed the sales price).
In general, bring your photo identification, the home’s deed, and all copies of keys or passcodes belonging to the property. Be prepared for plenty of signing!
When both the seller and the buyer have signed all the necessary paperwork to transfer the property and handle any mortgages or loans, the closing officer will distribute checks to any parties receiving funds from the sale, and make sure the buyer receives the keys to the property.
After the closing, the deed with the new owners’ names will be sent to the proper governmental authority for recording, generally the county Register of Deeds. Make sure to keep the records of the sale, closing documents, and any improvements you made to the property, in case you need them when it’s time to file your taxes.
Then take a deep breath, relax, and congratulate yourself on selling your home with OpenHomes!