Closing in real estate refers to the final step in a real estate transaction, where the ownership of the property is officially transferred from the seller to the buyer. All the necessary documents are signed during closing, and funds are transferred. “Closing” typically refers to the few hours required to sign paperwork. However, the closing process takes place over the 30-60 days leading up to when the new owner gets the keys to their new home.
Here’s what to expect on closing day – from a buyer’s and seller’s perspective. We’ll also advise you on how to ensure a smooth real estate closing process (as well as factors that could delay closing). Whether you are a buyer, seller, or a beginning real estate agent, you can depend on Colibri Real Estate School for clear explanations of complicated materials.
Who Is Present at a Real Estate Closing?
Historically, closings occurred in person with a title agent, both real estate agents, and the mortgage lender present. However, during the COVID-19 pandemic, the process became primarily digital. However, in some states, a buyer or seller may require the assistance of a notary to witness the signing of certain documents.
What to Expect When Closing on a Property
Closing day looks different for a buyer than a seller. Here’s what to expect.
Closing day for sellers
Closing as the seller should only take a few hours, and the actual tasks may take less than half an hour. In some cases, the seller may be able to sign documents at home and have the sale proceeds wired to them, eliminating the need to go into an office.
On closing day, the seller will sign the deed and other necessary documents to transfer ownership. They’ll receive payment, pay off any outstanding liens or mortgages, and hand over the keys. The title company or attorney will record the transaction, officially completing the sale.
Here’s what a seller may need to bring to a closing appointment:
- Government-issued identification
- Keys, access codes, and garage door openers
- Cashier’s checks for closing costs and repair credits
- Personal checkbook
- Proof of repairs
Closing day for buyers
The buyer has more to do on closing day than the seller. On closing day, the buyer will review and sign the final loan documents, settle closing costs, and provide the down payment—assuming the buyer will borrow money to purchase the property. They will receive the keys and ownership documents for the property. The title company or attorney will record the transaction, officially transferring ownership.
Here’s what a buyer may need to bring to a closing appointment:
- Government-issued identification
- Cashier’s check
- Closing disclosure
- Proof of homeowner’s insurance
- Real estate attorney (optional)
10 Steps to Facilitate a Smooth Real Estate Closing Process
One of the responsibilities of a real estate agent is to facilitate a smooth real estate closing process for their buyer and seller clients. You’ll learn about this process in detail, including state-specific regulations, when taking pre-licensing courses with Colibri Real Estate School.
Here are some things to consider leading up to closing day.
1. Escrow account
An escrow account in real estate is a neutral third-party account where funds or assets are held until specific conditions of a transaction are met. Anyone involved in the transaction can open escrow—buyer, seller, real estate agent, or lender.
Opening escrow involves going to the escrow or title company and handing over the buyer’s deposit (earnest money). If the buyer is represented by a real estate agent, the agent usually opens escrow since they hold the good faith check from the buyer. An escrow officer assists with the process.
2. Home inspection
A professional home inspection will help a buyer uncover anything wrong with the property. If the buyer’s offer includes a home inspection contingency, they can back out of the deal or ask the seller to fix the problems. If the offer was not contingent on an inspection, the buyer can still back out of the agreement. However, they will likely lose their earnest money as a result.
Related: How to Become a Home Inspector
3. Pest inspections
A pest inspection ensures the home has no wood-destroying insects, such as termites or carpenter ants. Pest inspections are required in some states, and many mortgage companies require that even minor pest issues be fixed before the deal is closed.
4. Appraisal
The house appraisal process ensures the property’s value aligns with the purchase price. A licensed appraiser thoroughly evaluates the property, examining its condition, location, size, and features. The appraiser also compares the home to similar recently sold properties. The resulting appraisal report provides an estimated market value of the property. This helps the lender determine the loan amount and protects the buyer from overpaying. If the appraisal value is lower than the purchase price, the buyer and seller may need to renegotiate.
Related: What Is Appraisal in Real Estate?
5. Mortgage loan
Buyers should get pre-approved for a loan before looking at properties. Some properties move quickly, and buyers with financing in line are more likely to get the home of their dreams.
Related: Homebuyer’s Home Guide: 7 Types of Mortgage Home Loans
Savvy borrowers will shop around for the best deals. In addition to interest rates, they will also consider closing costs and miscellaneous fees.
6. Closing costs
There are many fees involved with a real estate transaction. In fact, closing costs typically range between 3% and 6% of the total loan amount. Some of these closing costs may be negotiable for the buyer:
- Origination fees
- Underwriting fees
- Loan application fees
A savvy buyer will shop around for the best deal from a mortgage company.
7. Title search and insurance
Although you may assume the seller is free to sell their property, this is not always true. A property title search examines public records to confirm a property’s rightful owner and reveals any claims (or liens) on the property. It ensures the current owner has a clear title and identifies any debts or encumbrances that may become the buyer’s responsibility when the ownership is transferred to them. Title searches are critical for avoiding future legal and financial issues.
Title insurance protects buyers and lenders from financial loss due to defects, liens, or property title disputes that were not discovered during the title search.
8. Contingencies
Your real estate offers are often contingent on the following:
- Sale of another home
- Financing
- Inspections
- Appraisals
Some contingencies must be removed in writing by specific dates. However, in some purchase agreements, contingencies are subject to passive approval, which means they are considered approved if a party doesn’t protest them by their specified deadlines.
Related: What Does Contingent Mean in Real Estate?
9. Real estate attorney
Buying a property is one of the most significant financial decisions a person will make. Many buyers feel more comfortable having a real estate attorney review the documents involved in the sale. As a buyer’s agent, you may want to have a list of reliable attorneys in your area to recommend to clients.
10. Final walk-through
During the final walk-through, the buyer inspects the property to ensure it is in the agreed-upon condition before closing. They may need to confirm any repairs requested after the home inspection have been completed while also ensuring no new damage has occurred since the last viewing.
During the final walk-through, the buyer can verify that the agreed-upon appliances and fixtures are present and that the major systems are operational.
Factors that Delay the Closing Process
Everyone involved in a real estate transaction wants a well-timed closing. However, some factors can prolong the process.
1. Renegotiations
Buyers may try to renegotiate if the professional home inspector uncovers substantial problems with the property. Additional negotiations may prolong the buying process, potentially leading to revised terms, extended timelines, or even the possibility of the deal falling through if an agreement cannot be reached. This highlights the importance of a thorough inspection and clear communication between parties.
2. Failure to secure financing
Buyers who are not pre-approved before putting an offer on a house may prolong the process. They may need help to secure financing, leaving the seller in limbo. This delay can cause frustration for both parties and may lead to the seller considering other offers, potentially jeopardizing the original buyer’s chances of acquiring the property.
3. Low appraisal
A low appraisal can prolong closing by necessitating renegotiations between the buyer and seller. Otherwise, the lender may reduce the loan amount, requiring the buyer to increase their down payment or the seller to lower the price. These negotiations can extend the timeline, delaying the finalization of the sale.
4. Title issues
If a lien or claim on the property is uncovered during a title search, the closing process can be delayed. Resolving these issues can take time and may involve legal proceedings.
As you already know, there are a lot of logistics involved in a smooth real estate transaction. Skilled real estate agents who can easily manage these complexities are highly sought after. If you are a detail-oriented person who can juggle multiple transactions at a time, you could have a thriving career as a real estate agent.
Colibri Real Estate School offers flexible learning options for your required state-specific real estate courses. We offer a pass-or-don’t-pay guarantee and will teach you everything you need to know to excel in a fast-paced industry.
Key Takeaways
- The closing process in real estate is the final step in the ownership transfer from the seller to the buyer. It involves signing documents and transferring funds.
- On closing day, sellers sign over the deed and receive payment, while buyers finalize loan documents, pay closing costs, and receive property ownership.
- Steps to ensure a smooth closing include opening an escrow account, conducting inspections, securing financing, and performing a title search.
- Factors that can delay closing include low appraisals, title issues, renegotiations due to inspection findings, and failure to secure financing.
Sources:
1. Goff, Kacie. “Closing Day Checklist.” Bankrate, October 5, 2022. https://www.bankrate.com/real-estate/closing-day/.
2. Shobhit, Seth. “12 Steps of a Real Estate Closing.” Investopedia. Accessed July 10, 2024. https://www.investopedia.com/articles/mortgages-real-estate/10/closing-home-process.asp.
3. “What to Bring to Closing: A Buyer’s Checklist.” Rocket Mortgage. Accessed July 10, 2024. https://www.rocketmortgage.com/learn/what-to-bring-to-closing.
