Closing day is a big day for home sellers. As the seller, you will transfer the property into the name(s) of the new owners and get paid, pay off all mortgages and other closing costs, pay real estate agent commissions and receive the sales proceeds. It is especially important to have a smooth closing if you plan on buying a new house the same day, or soon after. This article will give you a better idea of what to expect, and how to avoid any glitches.
What is a real estate closing?
The closing of a sale contract occurs when both the buyer and seller have fulfilled all the terms agreed upon in the contract. It is the literal transfer of documents and money so that the seller can give the buyer ownership of the house free and clear. You will also pay off any loans you still owe on the home and all parties who provided documents or services for the sale.
All agreed upon actions, such as making repairs or improvements to the property, or taking action to clear the title (such as removing an encroaching shed onto the neighbor’s land), should also be completed before the closing. If you and the buyer have a separate agreement for the work to take place at a future date, that would be an exception.
The closing is also called a “settlement”, because all parties involved in the transaction, including the buyer, seller, buyer’s bank, sales agents and seller’s bank, “settle up” with each other. You will likely hire an unbiased third party to make the process more secure, and allow all parties to view the closing as having occurred simultaneously. This person is called a settlement agent or “escrowee”.
The escrowee is responsible for collecting all documents, money and other items required to close the transaction from those parties who are assigned to provide them. They will then pay the money needed to clear the title, pay all old lenders and lienholders and pay service providers. And, of course, the listing agent and buyer’s agent get paid as well.
Where will your closing take place?
In the past, the closing of escrow would take place at the office of the escrowee. This is usually the title insurance firm that insures buyer’s ownership. In certain places, like Alaska or Southern California the lender’s offices would often handle the closing of the escrow. Or an attorney who was involved in the deal might have hosted.
It’s possible that you will never need to visit a physical office due to the coronavirus outbreak and the digital options for signing and transferring documents. You can receive all the documents via an online portal where you can choose a signature style and agree or disagree with their contents.
Some signatures, however, will require a notary to view your passport, driver’s license, or other proofs of identity. A mobile notary will come to you if requested.
In some states the person selling the home closes through an escrow over a few days or even weeks. In other states, the closing is done by a “table closing,” where the closing includes the depositing of documents, money, and any other items needed to close. The final disbursement for all escrow funds also occurs at a predetermined date.
Should the seller be present at the closing if it is done in person?
You, as the seller may or may not be required to attend. You could also pre-sign any transfer documents or deeds, and give your attorney the power of attorney to sign incidental documents on behalf of the escrowee. If you’re buying a new home on the same or next day, your sales proceeds can be transferred directly to your bank account or escrow.
There are different opinions between attorneys and escrowee on whether or not the seller should be present at the closing. You can take the time you would have spent at the closing to complete other important tasks, like moving. You can avoid tense discussions with the buyer, who may be worried about minor defects or seek credits for closing that are not specified in the contract.
After the Closing
Closing is complete once the escrowee has paid off your lender, other lien holders, and service providers. You will receive your sale proceeds, the deed and the buyer’s mortgage (if applicable) are recorded with the county recorder, and all other transfer documentation goes to the buyer.
After the closing is complete, you are no longer the property owner. You must give the buyer the keys to the house, the garage door opener, and any other device that controls the home’s appliances and systems, unless the contract states otherwise.
By this date, you should have moved out your entire household, including your belongings, and cleaned the house thoroughly. If you do not have an agreement that allows you to remain longer, then you may be evicted or the buyer can sue you for damages if you breach the contract.
It’s possible to negotiate with the buyer for a “Rent-Back” if you think you may not be able to move out by the closing date or even before. You should ask for it as soon as you can, whether that is when you are negotiating the sale contract or before closing. You should be able to stay at the house for a certain amount of time, in exchange for daily rent or monthly rental. In a hot housing market, a buyer may allow you to stay in the home for up to a month rent-free. Rent should cover your property value (you’re now a renter in a home that was once yours), your hazard insurance and your real estate taxes during the period you are there. You are responsible for any damages to the house that occur during this period.
Your lender should deliver you a mortgage release as soon as possible after receiving the full payment for your outstanding mortgage. The lender may send the original mortgage release directly to the county recorder or to the escrowee for recording. It is important to make sure that the release has been recorded and returned to your name.
This release, along with copies of all other closing documents, should be kept. One or more of these documents may be needed by your tax preparer when preparing taxes for the year in which the sale occurred.