Closing a Home Sale: What to Expect

You have either agreed to sell or buy a home and the buyer has paid the earnest money putting the deal into escrow. Now it’s time to complete the final steps! This can be both an exciting and stressful time in getting all your affairs in order and preparing to be done with the long and arduous process of a home sale. Here is what you can expect at closing.

What Does "Closing" Even Mean?

In a nutshell, closing is the final settlement of all the terms required to complete the sale of the property. The sales contract, usually called a real estate purchase agreement, lays out all the important terms of the sale, including what steps must be completed before closing can occur and what documents need to be exchanged to legally transfer title to the property to the buyer.

While the property is in escrow the buyer and seller will be taking the required steps to get to closing. The parties will usually coordinate to obtain an appraisal of the property value and a professional inspection of the condition of the premises. The real estate purchase agreement should clarify what things each party is responsible for paying for. For instance, the seller is usually required to pay for all the costs associated with obtaining a title report and preparing the deed to transfer title. The buyer will then pay for recording the deed, obtaining title insurance, and any costs associated with financing the property.

Contingencies to Fulfill before Closing

Usually the real estate purchase agreement also requires certain contingencies to be fulfilled before closing can occur. If a contingency is not fulfilled, then one of the parties—usually the buyer—can back out of the deal. Possible contingencies include an appraisal contingency, an inspection contingency, a financing contingency, a buyer’s home sale contingency, and a kick-out contingency.

These are usually pretty straightforward. For instance, as you might have guessed, an appraisal contingency requires the home to appraise for at least a certain amount—usually the asking price—or else the buyer can exit the deal. Similarly, an inspection contingency requires that a satisfactory inspection of the home occur that reveals no material defects in the construction.

The Financing Contingency

The most important contingency is usually the financing contingency. This makes the deal contingent on the buyer’s ability to obtain financing for most, if not all, of the sales price. This is required because the buyer usually has to find a house to buy and agree on the essential terms of the deal with the seller before it can approach a lender for financing. Rarely does the buyer already have all the money needed for the deal. No money, no deal, right?

Sometimes a contingency is also included that requires the buyer to first sell its home before being required to purchase the seller’s home.

This happens when the buyer’s home is on the market and the money received from selling it is going to be used to help purchase the buyer’s new home.

Since this contingency puts closing on a rather indefinite timeline, tied to the whims of the buyer’s real estate market, sellers can choose to include a kick-out contingency to protect themselves. This essentially allows the seller to continue marketing the home while waiting for the buyer’s home to sell. If another potential buyer should make an offer on the seller’s home, the original buyer will have a few days to sell its house or agree to remove the home sale contingency; otherwise, the seller can cancel the deal and sell to the new buyer.

Where Does Closing Occur and Who Attends?

Usually the parties and their attorneys will meet at the office of the title insurance company to finish the deal, but as this article explains, closing could also occur at the escrow company or one of the attorneys’ offices. Often the seller does not even need to attend and can sign the transfer documents ahead of time or execute a power of attorney to allow its attorney to sign for the seller at closing.

Witness-Only Closings

As this useful article about navigating the closure process explains, while some states require an attorney to be present at all closings and explain the legal implications of the documents involved to the parties, other states allow “witness-only” closings. In a witness-only closing, an attorney or a notary will be present to distribute the documents and help transfer the funds, but he or she is only there on behalf of the buyer’s lender and won’t explain anything to the parties.

Wrapping Up Closing

State laws differ as to what exactly has to take place at closing, but essentially the deed to the property is transferred to the buyer, any remaining closing costs are paid, and funds are transferred and disbursed. The deed will also need to be filed with the county recorder’s office before the deal is officially over.

As this article outlines clearly, often, the real estate purchase agreement will require a few actions to be completed after closing. Usually the seller will normally need to have all of its personal property out of the house by the closing date or within a short time thereafter. The seller will also need to coordinate with its lender to receive a release and satisfaction confirming its mortgage has been paid off. Also make sure the lender records the release with the county recorder’s office. The parties should keep all copies of closing documents for their records, as they may be needed in the future—for instance, when paying taxes.