Introduction
In the real estate business, closing or finalizing a certain deal stands as one of the mysterious processes for those who are selling or buying property for the very first time. Apart from specific paperwork, the concerned parties have to go through and carry out a lot of other activities. With this concern in mind, this research paper is aimed at making important discussion about the true essence of what the real estate closings really stand for.
Apart from defining this concept with succinct detail, it is imperative to define all those activities and processes that lead to or are carried out on the settlement date for “closing” real estate deals. Not only this, a comprehensive process underlying closing a real estate deals also highlighted in a concise manner. All those activities that result in delay of real estate closings are also mentioned in this research report. This is backed by those tips using which buyers, sellers and agents could effectively finalize or close a real estate deal.
The Idea of Real Estate Closings
In the real estate business, closing a deal is often referred to as settlement or completion of the final step to execute a real estate transaction. During the negotiation phase, the date for closing a real estate deal is decided and agreed upon by all the concerned parties. From a general perspective, the closing date is agreed upon few weeks after the buyer’s offer is accepted formally by the seller. When a real estate deal is closed, the ownership of the property is transferred on the closing date from seller to buyer. In other words, closing a real estate deal means ownership is transferred officially when a seller delivers the title to concerned purchaser .
In business management, one can refer to real estate “closing” as a “settlement” since these two terminologies are being used interchangeably these days. Closing represents a final stage in finalizing a purchase transaction in a real estate business. Closing occurs when the ownership title of certain property is fully transferred to the buyer from the seller.
The exchange of money and property on the settlement date is also known as a real estate closing. Closing process in real estate is finalized when the seller receives the money (usually in form of a check), agents collect their commission from both the buyers and seller while the buyer receives the title and its ownership.
Overall, real estate closing refers to title of ownership from the seller to the buyer as well as finalization of payment proceeds from the buyer to the seller while the commission is paid to the real estate agents. Further, the title of ownership of a specific property is said to be transferred to the buyer when such a property gets registered in the purchaser’s name.
Parties Involved in Closing Real Estate Deals
When a real estate transaction is to be closed down on a settlement or closing date, the event should be attended by the buyer, seller and their respective attorneys. If the real estate agent is involved to bring the buyer and seller together, he must be present in the closing deal. Similarly, if the buyer has borrowed money from any financial institution to purchase the property, a mortgage agents or bank’s representative must also be there while closing the real estate deal. In such a case, the event will result in the closing of two separate real estate deals. One will pertain to the closing of a property purchase transaction, whereas the other transaction will be concerned with closing of a mortgage deal between buyer and the lender .
Activities Carried out on the Settlement or Closing Day
Though enormous paperwork is involved in closing real estate deals, it is imperative to highlight all those activities that result in closing or finalization of real estate transaction. The concerned legal authority keeps the necessary documents ready to be signed by the seller and buyer. If the real estate property is a home, then, the borrower will be required to sign legal disclosures, mortgage documents, and tax records etc.
On the closing day, the buyer would be required to pay his dues (price of the property) in the form of a check to the seller. In exchange, the seller is required to sign a deed and transfer the ownership rights (title) of the property to the buyer. This signed deed is registered in the public office bearing the name of a new buyer. At last, the seller would hand-over the keys and legal documents of the real estate property to a new buyer.
On the closing day of any real estate transaction, each party has to pay certain taxes and dues. The buyer has to pay attorney fees, bank fees, filing fees, flip tax as well as any dues concerning appraisal and maintenance adjustment etc. if a buyer is financing the transaction with loan, he will be bound to pay loan origination fee and prepaid mortgage interest. Both the seller and buyer would have to pay attorney and brokerage fee to close the real estate deal.
All these payments must be made in the form of bank check for safety of financial transaction. Property transfer tax is also to be paid by the seller at the time of closing a real estate deal. If a person is buying real estate worth more than one million, he would be required by the public law to pay “mansion tax” which one percent of the total property price.
Reasons for which Real Estate Closings are Delayed or Cancelled
The first reason for which real estate closings are delayed or cancelled because the transaction is improperly structured and all the concerned parties agree to unrealistic contract dates for closing or settlement. Roughly, after acceptance of the purchase offer, minimum forty five to sixty are required to close the real estate deal on the final date. For instance, time lag of twenty one days between the offer acceptance date and the closing date is quite unrealistic if the parties are not prepared.
The second reason behind closing delay or cancelation is because if a buyer is financing the transaction with bank mortgage, he is unable to receive real estate appraisal in a timely manner which can delay and sometimes, cancel a real estate deal. If the bank appraiser raises issues over the real estate property, both the seller may or may not arrive at new terms and conditions.
The third reason title related concerns. To avoid this problem, it is important that both the buyer and seller should appoint a separate attorney so the property title should be cleanly transferred from the seller to the buyer. A clean title means there are no lawsuits or liens against such a real estate property while the deal is being closed.
Tips to Carry Out Real Estate Closing Smoothly
Though closing a real estate closing may be a time consuming and complicated process, yet it could be carried out smoothly if certain tips are followed and the transaction is executed with proper planning. All parties and their attorneys should ensure that the property is not backed by any unknown mechanics lien concerning unsettled disputes or from a former building contractor. Similarly, the inspection report should be properly structured to highlight problems, if any. All parties should also make sure that proper and accurate agreed upon amount of payment is exchanged for the real estate property while closing.
It is the responsibility of the seller to disclose any structural defect in the property to resolve repair disputes beforehand. The seller should deliver the property as promised at the time of making an offer. For speeding up the loan process, the buyer and seller should get the approval from their banks in advance if the real estate closing is financed with a bank loan from both the sides. Assembling and organizing all the documents and bank reports is important to close the real estate deal properly and on time. Preparing a checklist seems a feasible idea in this regard .
In the same manner, it is the prime obligation of the seller to disclose all facts and issues associated with the real estate property. The buyer must ensure that all the repairs and issues, if any, have been properly addressed and finalized by the seller before closing the real estate deal. It is preferred that the buyers and their attorney should inspect the property themselves through a final walk-through before closing the real estate transaction.
It is recommended that the buyer must remain in contact with the lender before and on the closing date so that no piece of information remains unknown as well as ensure to keep all documents ready. On the closing date, the buyer and seller should have it verified from their closing agents that all the documents concerning loan agreement have been received. In case, no document is received by the closing agent, the borrower (buyer) should investigate the cause for such a delay to speed-up the process.
Lastly, it is suggested that after all issues are resolved, the loan get approved and all the parties have received as well as signed the concerned documents, both the seller and buyer should further ensure that the closing of real estate deal is done smoothly by reviewing all documents twenty hours before the settlement date. In case any party has certain questions in mind, the counterpart may answer and address such concerns in advance.
Conclusion
After a careful analysis of the process and activities underlying closing of a real estate transaction or deal, it is found that it is the day on which all documentation is completed, the ownership title is transferred to the buyer and seller receives the compensation in exchange for the property. Moreover, on the closing date of a real estate transaction, both the buyer and seller must pay a brokerage fee to real estate agent as well as fees to their respective attorneys.
Before closing the deal, the seller must reveal all those facts related to the property that is unknown to the buyer. Similarly, any issue with the ownership title or other property concerns should be dealt with before the closing. The buyer must have the property inspected before accepting the offer. If the purchase transaction is funded by a bank loan, the lender should also be involved in the closing process. After confirming the viability of the real estate property, the buyer must keep funds readily available o the seller and avoid delay or cancellation of the real estate closing.
References
Blain, M. (2007). Your Real Estate Closing Explained Simply: What Smart Buyers & Sellers Need to Know. Atlantic Publishing Company.
Gadow, S. (2015, March 13). 6 tips to ensure a smooth house closing . Retrieved June 17, 2016, from The Washington Post Newspaper: https://www.washingtonpost.com/news/where-we-live/wp/2015/05/13/6-tips-to-ensure-a-smooth-house-closing/
Lerner, M. (2015, July 13). 5 tips to avoid delays when closing on a home. Retrieved June 17, 2016, from Bankrate Incorporated: http://www.bankrate.com/finance/real-estate/avoid-delays-when-closing-on-a-home.aspx
Yoegel, J. A. (2012). Real Estate License Exams For Dummies. John Wiley & Sons.
