After months of open houses, showings, and countless negotiations, an offer is finally made on a property.
Cue a collective sigh of relief from the buyer, seller, and agents.
But not so fast. An offer is just the beginning stages of the real estate closing process and there are still a few hurdles to get through before the deal is finalized.
What is a closing?
In real estate, the term closing refers to a period of time where a deal on a property is finalized. This is the final step of the real estate transaction and signifies ownership of the property being transferred from the seller to the buyer.
There are a lot of moving parts that impact how long a closing takes. Sometimes, the deal can even fall through. To help you prepare, we’ll run through everything you need to know about the real estate closing process.
Closings can be nerve-wracking for buyers, sellers, and even experienced agents. Collectively, each party plays a part in making sure the closing goes smoothly. If everyone comes prepared and things go according to plan, the property will have a new legal owner by the end.
Below, we answer the most common closing questions to make sure you go into the main event equipped with everything you need to succeed.
What are the steps of the closing process?
There are a lot of steps that lead up to the final closing day. This might look different depending on which state you live in, but there are generally 6 number of main steps that need to take place in order for the deal to go through.
Once a formal offer is made and accepted (this is also referred to as a purchase agreement), the next step is to open an escrow account. The purpose of escrow is to protect both the buyer and the seller by having a third-party manage their funds until all the conditions of their agreement are met.
At the end of the closing process, once everything has cleared, the funds will be transferred from the buyer to the seller and escrow will formally close.
The process of performing a title search and buying title insurance is an important legal step in the closing process that ensures the property is actually owned by the seller.
- A title search goes through the ownership history of the property to evaluate if there have ever been any problems with ownership rights in the past.
- Title insurance protects the buyer from any potential legal problems that could arise relating to past owners of the property.
This part of the closing process is executed solely by the buyer. They are responsible for choosing a title company that will do all the heavy lifting.
A home appraisal is ordered by the mortgage lender and consists of an inspection of the home to determine its market value. The lender requires an appraisal to ensure that the value of the home is on par with the amount that the buyer is requesting to borrow.
Unless the buyer is paying for the property in cash, they will need to secure financing for the home in the form of a mortgage loan. This part of the closing process is often lengthier since finding the right lender and getting a loan approved requires a high degree of financial credit analysis.
Before the final closing meeting, the buyer should do a final walkthrough of the property. This is to ensure that any previously agreed-upon repairs have been made and that the seller has fully vacated the premises. It’s common to do the final walkthrough a day before closing.
This is the final step in the closing process. At this time, the escrow officer will send a formal closing notice that details the date, time, location, and the names of the parties that need to be present. This typically includes the buyer, seller, and real estate agents.
On the day of the sale, the buying and selling parties need to go through all of the required documentation with a fine-toothed comb to make sure everything is accurate. It’s not required to have an attorney present since most real estate agents are well-versed in the legalities of closing paperwork.
How much does closing cost?
According to Zillow, closings costs can run anywhere between two and five percent of the total purchase price. Both the buyer and seller will be responsible for certain closing costs, but this all depends on what was negotiated after the initial offer was made. It’s common for the buyer to pay for the majority of the costs including escrow fees and property taxes, while the seller will cover the agents’ commission payout.
How long is a typical closing?
There’s no definite answer here. With so many variable factors, closing could take anywhere from 30-60 days. The part of the process that usually takes the longest is waiting for mortgage approval.
Ring the gong
Closing can be a stressful time for everyone involved in a real estate transaction. That being said, the process is meant to protect all parties and ensure that the deal goes off without any mishaps. When all is signed, sealed, and delivered, everyone leaves a closing meeting feeling satisfied with the outcome.
Shuffling through stacks of paperwork and asking for wet signatures is quickly becoming a thing of the past. Discover the best e-signature software on the market that will simplify your closing proceedings.