You and your buyer have finally finished initial negotiations and agreed to an offer. Congratulations, you’ve finally reached the finish line and are ready to close on the sale of your home! However, there are some steps you will need to take before the sale is finalized. If this is your first time selling a home, you may not know what to expect during closing.
If you are prepared, the home closing process does not need to be overwhelming. Here are the basic items you should expect.
What is “Closing”?
Literally, closing is the transfer of documents and money so that the seller officially transfers ownership of the property to the buyer. More specifically, closing is when both the home seller and buyer fulfill all of the items agreed to in the sales contract. As the seller, this includes paying off any loans still carried on the property and paying any parties who helped facilitate the sale.
You will sometimes hear a closing referred to as a “settlement”, because all of the parties involved are settling up among themselves. To secure this process, you will most likely hire a neutral third party, called a “closing agent.” Depending on your state, this party may be a title company or an attorney.
To ensure you are the legal owner of the property, your closing agent will order what is known as a title search. If there are any liens, claims, or judgments against the property, this title search will uncover them. A clean title is required in order for the sale to move forward.
Most buyers will insist on a home inspection to root out any hidden issues with the property. This inspection will typically happen soon after the buyer’s offer is accepted. If you are aware of any repairs prior to the home inspection, your real estate agent will probably recommend that you make these repairs before the home inspection to avoid any problems.
Once the home inspection is complete, the buyer may ask you to make any major repairs before closing or ask that the repairs are remedied through a reduction in price to cover repair costs. Which option they choose may depend on what has been outlined in the sale contract.
To protect yourself from any unexpected breakdowns or repairs while your home is on the market, talk to your agent about a Sellers Policy from Choice Home Warranty. This home warranty policy will be completely transferable to the home buyer at closing.
Assuming the buyer is working with a mortgage lender for the home purchase, this lender will order a professional appraisal. The purpose of this appraisal is to ensure the loan amount is aligned with the market value of the property in case the home needs to be repossessed. This valuation will be based on comparable homes that have sold in the area recently and the various features of the property itself.
If the home appraisal is below the agreed-upon sale price, the lender can choose to decline the mortgage loan. When this happens, the buyer will need to pay the difference or you can challenge the appraisal if you believe it is inaccurate.
On the final walk-through, the buyer and buyer’s agent will walk through the property to ensure everything is in order and as agreed upon. This will usually happen the day before the closing date.
During the walk-through, they will make sure any required repairs were completed, that all of your possessions have been removed from the property (unless otherwise agreed on), and that the home is clean with no additional damage. If any issues are discovered, the closing could be delayed until these items are addressed.
Transfer of Ownership
There are many transfers that will need to take place for the transaction to become official. These items can be grouped together as financial, documentation, and property.
As previously mentioned, the financial transfers will include payoffs to all parties involved. These parties will include some or all of the following:
- Your mortgage holder and any additional lien holders
- Your local government for any property taxes that are due
- Your real estate agent, for commission on the sale
- Any other third-party service providers
- You, for the sale of the home
The documentation will likely include:
- The deed to the house
- Bill of sale, title certificate, and any other real estate-related documentation
- Closing Disclosure (CD) and/or signed closing instructions
- If necessary per the agreement, receipts for any completed repairs
And finally, the transfer of property:
- Recording of the signed deed by third-party
- Exchange of keys, appliance manuals, security codes and devices, garage door openers, and any other items the buyer will need
- A post-closing agreement, if you will need to rent back the home from the buyer for an agreed-upon time-frame
The sale and closing of your home can be a difficult and confusing time, so be sure to consult your real estate agent and listen to their advice throughout the entire process. Once these items are settled and everything runs smoothly, you’ll be all set to move on to your new home.