Buying or selling a home, no matter if it's a single-family house, a townhouse or condominium is a major financial, and often emotional, event all around. The cost makes it the biggest single financial transaction most people experience and may seem like you're signing your life away. Completing a sale at closing or through escrow may come after months of hard work for all involved.
Once you've got your closing scheduled, know what to expect at the closing table and how to prepare. Own your closing, and be ready to take the keys to your new place or receive a check for your big sale.
What Is Closing?
A real estate transaction is completed at a closing where money is exchanged, and all paperwork is signed and completed to transfer ownership from seller to buyer. Laws and customs do vary by state, and even on a local level.
In some states, such as California, a sale is completed through a process called escrow. A third party, the escrow agent, follows directions for completing a sale. When all steps are complete, title to property and money change hands.
Closing Location and Who Attends
The location for a closing and who attends can vary, based on local custom and laws. Common locations include title or escrow company offices, or at the office of the buyer's attorney. Usually, a closing is attended by:
- The buyer
- The attorneys for the buyer and seller
- The real estate brokers or agents for both seller and buyer (it's their payday)
- A closing agent, who usually works for the title insurance or escrow company
- Representatives for the lender and title company (this could be the closing agent)
The seller may not attend. The seller may sign documents, including the deed, before closing, and his or her attorney goes to the closing.
Most Work Happens Before Closing
A closing is really a culmination of many other steps in a real estate transaction. Buying or selling a home is a lot of work, but your attorney, real estate broker, title company and lender have completed many behind-the-scenes tasks before closing day.
Tasks to Complete Before Closing
The road to closing starts with a sales contract or purchase agreement. In most areas, standard contracts allow for attorney review. Once the terms of the contract are final, including closing date, work begins in these areas:
- Financing. Most people need a mortgage to buy a home, and sales contracts usually give buyers a set number of days to get a loan commitment, including appraisal
- Title commitment. This is the promise or agreement by a title insurance company to issue a title insurance policy. Legal records on a property are researched for any title problems or issues. This process usually goes smoothly, but it's still a crucial step
- Home inspection, including pest inspection. Many sales contracts are conditioned upon inspection results, and resolving any problems that turn up
- Insurance and other transfer issues. Other key tasks to complete before closing include arranging for homeowners' insurance and items such as paying state and local transfer taxes
Your Attorney's Help
Your real estate attorney can help getting to and through closing day as stress-free and smooth as possible. At many points in the process, an attorney has the skill and position to succeed in working through negotiations and problems that come up. Emotions can run high when selling and buying homes, and your attorney is often the best way to keep emotions and personalities out of the way.
The day before closing, you should get a copy of the HUD-1 Settlement Statement from the closing agent. Required by federal law, the HUD-1 contains:
- A summary of your loan details
- Transaction summaries for the buyer and seller
- A breakdown of settlement charges for each party
- A comparison of lender charges listed on the HUD-1 and the Good Faith Estimate (GFE) you received when you applied for your loan
The HUD-1 also lets you know the exact amount for the cashier's check you need to bring to closing. Review the HUD-1, and ask questions if you suspect errors. Sometimes the HUD-1 isn't ready until hours before closing; don't worry, you should be able to close as scheduled.
Schedule Walk Through
Have your real estate broker schedule a final walk through home shortly before closing time. You can confirm that there hasn't been any damage since you signed the sales contract and that the seller has moved out.
Closing: Money, Deeds and Other Documents
When you arrive at the closing, the closing agent will likely start by checking a buyer's identification and will get ready to start signing all the paperwork. The object at closing is the seller's receipt of payment and delivery of the deed to the buyer, including signing mortgage documents.
Documents at closing depend on your sale. For example, there's more paperwork for the sale of a condo with a mortgage. Here's a list of key documents you're likely to see:
- The sales contract, and a bill of sale for personal property, such as appliances or lawn equipment
- The HUD-1
- Homeowners', flood, and mortgage guarantee insurance policies
- The note for the buyer's loan and mortgage or deed of trust
- Seller's disclosure statement
That's it, and your closing is done. You'll have copies of some documents to take with you. Look for other documents to follow, such as the recorded deed for buyers, and for sellers, the mortgage release and canceled note. Buyers can enjoy their purchase and sellers are set to move on.
Questions for Your Attorney
- What happens if the seller hasn't moved out when I do my walk through?
- I need to close by a certain date, so can the sales contract provide for damages if the deadline is missed?
- Who decides on the title company and closing agent to use?