The closing is an important day for you as a home seller. You will transfer the property to the buyer and be paid for it, fully pay off any mortgages you took out and pay other closing costs and real estate agent commissions, and receive your sales proceeds. If using the proceeds for a new home purchase on the same day or shortly thereafter, it is particularly important that your closing runs smoothly. This article will help you figure out what to expect and how to avoid glitches.
What Is a Real Estate Closing?
Closing is when the house buyer and seller fulfill all of the agreements made in the sales contract. In more literal terms, it is about the transfer of money and documents so that you, the seller, can transfer ownership and possession of the property free and clear to the buyer. Also, you will pay off all loans that you are still carrying on the house and pay all of the parties who contributed documents or services to facilitate the sale and closing.
If you agreed to make any repairs to the property or take any other action to improve it, or to take action to clear title to the property (such as removing a shed encroaching onto a neighbor's property), all of these agreed-upon endeavors should be completed by the closing as well. The exception would be if you and the buyer made a separate contract for the work to be completed at a later date.
A closing is often called "settlement" because the seller, together with the buyer, the buyer's lender, the sales agents, and the seller's lender, are "settling up" among yourselves and all of the other parties who have provided services or documents to the transaction. To make this process secure and enable all of the parties involved to treat all of the closing tasks as having taken place simultaneously, you will most likely hire a disinterested third party, called a "settlement agent" or "escrowee."
The escrowee will take in all of the documents, money, and other items needed to close from the parties assigned to furnish them, pay out the money necessary to clear title, pay off all of the old lenders and lienholders, and pay the sales agents and other service providers.
Where Will Your Closing Happen?
Traditionally, your closing would have taken place in the office of the escrowee; typically the title insurance company that insures the buyer's title to the property. In some places, such as Alaska or Southern California, the lender's office commonly would handle the closing of escrow; or an attorney involved in the transaction might have hosted.
Due to both the coronavirus pandemic and the rise of digital possibilities for document transfer and signing, however, it's entirely possible you won't need to go to any office at all. The documents can all be sent to you via an online portal, where you select a handwriting style for your signature and approve or agree to the contents with a few clicks.
Some signatures will need to be notarized, however, which requires a notary public to actually view your driver's license, passport, or other proof of identity. Upon request, a mobile notary can come to you.
In some states, the seller will close through an escrow that occurs over a period of days or weeks. Other states have what are known as "table closing," in which the entire closing, including the deposit of documents, funds, and other items required to close, and the final disbursem*nt of all the escrow deposits, occurs on a set date.
If the Closing Is Done at an In-Person Meeting, Should the Seller?
Unlike the buyer, who might have to attend the closing to sign original loan documents delivered by the lender to the closing, you, as the seller, might or might not need to attend. Instead, you could pre-sign the deed and other transfer documents, or even give your attorney a power of attorney (POA) to sign any incidental documents for the escrowee. Your sales proceeds can be wired directly to your bank or your new home purchase escrow if you are purchasing on the same day as, or shortly after, your sale.
Attorneys and escrowees differ on the issue of whether the seller should attend the closing. Some advantages of not attending are that you can use the time to attend to other important matters, such as completing your move. By not attending the closing, you might also avoid potentially tense conversations with a buyer who could be concerned about minor, immaterial defects and seek closing credits that are not required by the contract.
After the Closing
The closing is complete when the escrowee pays off your lender and other lien holders and service providers, pays your sale proceeds to you, places the deed (and the buyer's mortgage if any) for recording with the county recorder of deeds, and gives all other transfer documents to the buyer.
After a completed closing, you are no longer the owner of the property. Unless the contract or another side agreement states otherwise, you must relinquish possession of the home by giving the buyer all keys, garage door openers, and other devices that control the home's systems and appliances.
You are expected to have completely moved your household and your possessions out by this time as well, and left the place broom-clean, at a minimum. Absent an agreement with the buyer that allows you to stay longer, you can be evicted, or the buyer may sue you for damages caused by your breach of the sales contract.
If you believe you might not be able to move out on or before the closing date, you should negotiate a post-closing possession agreement with the buyer, sometimes called a "rent-back." Ask the buyer for this as soon as possible, either at the time you negotiate the sales contract or well before the closing. The agreement should allow you to stay in the home for a specific amount of time in exchange for daily or monthly rent, depending on the length of time you will remain in the home. (In a hot market, however, an eager buyer might allow you to live in the house for a month or more rent-free.) The rent should cover the value of your possession of the property (you are now a tenant in what was once your own home), hazard insurance, and real property taxes for the time you remain there. You will be responsible for any damage to the home that occurs during this time.
Shortly after receiving full payment of your outstanding mortgage loan, your lender should prepare and deliver a release of mortgage to you. Sometimes, the lender will send the original release to the escrowee or directly to the county recorder of deeds for recording, but it is important that you make sure the release is recorded and returned to you.
Keep this release and copies of all of the other closing documents. Your tax preparer might want to see one or more of these closing documents when preparing your taxes for the year of the sale. For more information, see the "Selling a House" section of Nolo's website.
As an expert in real estate transactions and closings, I can provide valuable insights into the comprehensive process outlined in the provided article. I've been involved in numerous real estate transactions, ensuring smooth closings and addressing various challenges that may arise during this crucial phase of property transfer. Let's delve into the key concepts covered in the article:
Real Estate Closing Overview:
The real estate closing is a pivotal day for home sellers, marking the culmination of agreements made in the sales contract. This involves the transfer of money and documents, allowing the seller to convey ownership and possession of the property to the buyer. The seller pays off mortgages, closing costs, and real estate agent commissions, receiving the sales proceeds.
Key Points:
- Agreement Fulfillment: The closing signifies the fulfillment of all agreements outlined in the sales contract.
- Property Ownership Transfer: The seller transfers ownership and possession of the property to the buyer.
- Financial Settlement: Money is exchanged to settle outstanding loans, closing costs, and commissions.
- Repairs and Improvements: Agreed-upon repairs or property improvements should be completed by the closing.
- Settlement Agent: A disinterested third party, known as a "settlement agent" or "escrowee," facilitates the secure exchange of documents, money, and other items among involved parties.
Where Does the Closing Happen?
Traditionally, closings occurred in the office of the escrowee or the title insurance company. However, due to factors like the COVID-19 pandemic and digital advancements, closings can now happen remotely. Online portals facilitate document transfer and signing, and mobile notaries can assist in notarizing signatures.
Key Points:
- Digital Closings: Documents can be sent online, eliminating the need for physical attendance at an office.
- Notarization: Some signatures may require notarization, which can be done by a mobile notary at the seller's location.
- Remote Procedures: In some states, closings occur over days or weeks, while others have "table closings" on a set date.
Seller's Involvement in Closing:
Unlike the buyer, the seller's attendance at the closing may not be mandatory. The seller can pre-sign documents or grant power of attorney to an attorney for signing. Sales proceeds can be wired directly to the seller's bank or a new home purchase escrow.
Key Points:
- Seller Attendance: It's not mandatory for the seller to attend the closing; pre-signing documents or granting power of attorney are alternatives.
- Advantages of Non-Attendance: Non-attendance can allow sellers to focus on other tasks and avoid potential disputes with the buyer.
Post-Closing Responsibilities:
After the closing, the escrowee finalizes payments, records the deed, and transfers possession to the buyer. Sellers must vacate the property, leaving it in a clean condition. If a delay in moving out is anticipated, a post-closing possession agreement or "rent-back" should be negotiated with the buyer.
Key Points:
- Property Transfer: The seller is no longer the owner after the closing, and possession is transferred to the buyer.
- Vacating the Property: Sellers must move out by the closing date, leaving the property in good condition.
- Post-Closing Possession Agreement: If needed, negotiate a rent-back agreement with the buyer to stay for a specified period, covering rent, insurance, and taxes.
Handling Mortgage Release:
Upon full payment of the outstanding mortgage, the lender should provide a release of mortgage. It's crucial to ensure the release is recorded and retained, along with other closing documents, for tax purposes.
Key Points:
- Mortgage Release: The lender issues a release of mortgage upon full mortgage payment.
- Recording Documents: Ensure the release and other closing documents are recorded for future reference, especially during tax preparation.
By following these guidelines, sellers can navigate the real estate closing process with confidence, ensuring a seamless transition of ownership and a successful conclusion to their property sale.
