River Realty Selling Guide - On to Closing
You’ve agreed to repair certain items and the buyers have removed their contingency. With the sale thus finalized your agent can hang a SOLD tag from the lawn sign, turn over the buyer’s earnest money check for deposit into her broker’s trust account, and propel the paper-pushing process primarily promising perfect property (sorry)—actually your agent will start by gathering all necessary information about the transaction and providing a “closing information” form along with a copy of the purchase agreement to the lender, the title company and the real estate broker.
In this topic area we’ll qualify the house via title work, appraisal and resulting work orders; we’ll look at the walk-through inspection and take you on to closing.
The title company will be working to verify that your house has a clear title by investigating the history of the property and looking for any new or old encumbrances such as unpaid taxes, liens, judgments or mortgages. They’ll also do a names search to find out if anyone with your name or a similar name has any legal problems or entanglements (this is when you wish your name wasn’t Olson). If a judgment against someone with a similar name shows up, you’ll have to sign an affidavit saying it is not yours, which will be recorded with the closing documents. Occasionally an old loan of yours will show up on the search and you’ll need to provide proof that it’s been paid off.
If this proves difficult, a good title company (such as the one we use) often can clear up simple title flaws without extra charge. For a really difficult problem you may need to use the title insurance that we hope you purchased when you bought the property; otherwise you may need to contact a real estate attorney who can work on your behalf. But big problems are very rare because of careful checks each time a house sells.
The title company will contact your mortgage company to arrange payoff at closing; they’ll prepare the deed and other documents needed to transfer title from you to the buyer; and they’ll send their closer to handle your (seller’s) side of the closing.
The buyer’s mortgage company will order an appraisal on their behalf. The appraiser will make an inspection of your property, looking at such things as square footage, floor plan, features and amenities, landscaping, proximity to schools, neighborhood quality, and comparing it with similar homes that have recently sold. The appraisal report establishes the value for mortgage purposes, and may include observations and recommendations for repair of some conditions. That’s a brief summary of the appraisal process—but if you want the real nitty gritty, we’ve included an article from Pat Rosaves' real estate column in the Longfellow Messenger:
Appraisals These Days
We’re getting our house ready to sell, but our neighbor had an experience recently that gives us pause. After they sold their house the appraisal came in low and they were forced to close for less money. What’s happening to appraisals nowadays?
Dear Fish Smellers,
You might be getting a fish story from carping neighbors. Most appraisals come off without a hitch these days; although the situation you describe sometimes occurs when the appraiser (or the bank underwriter) values the property below the sale price and both parties are forced to renegotiate. Remember, the seller is free to drop the deal at this point, and find another buyer who may have a more reasonable (to his thinking) lender/appraiser. Or the buyer may try to find another lender who likes the sale price (assuming the seller won’t budge on his price). And sometimes the renegotiation includes a lower sale price but with some compensating concessions from the buyer. So that rotting bullhead may turn out to be a grilled walleye by dinnertime. Keep in mind that we’ve always seen the occasional low appraisal.
But there have been major changes in appraisal procedure since Fannie Mae handed down new guidelines in May last year. In-house appraisers are a thing of the past. Lenders are expected to choose by case from a large pool of appraisers; most large mortgage companies take it a step further by hiring a third party company to pick the appraiser. Thus the mortgage company has no affiliation with the case appraiser, and no undue influence (keeping that fishy smell far, far away). Unfortunately, since the appraiser comes off a very large list, he/she may know nothing about the area of town where the subject property sits. In the past a bank would choose their “south Minneapolis expert” to appraise a house in Longfellow—nowadays it could easily be an appraiser who lives in Blaine who has a keen understanding of the northeast suburbs!
So, as it turns out, these days one of the few people who may have contact with the appraiser is the listing agent, who sets up the appraisal appointment, and sometimes meets the appraiser at the house. At this time a savvy agent is able to impart useful information about recently sold houses in the area that the appraiser might not find in MLS records. This can be of great value if the listing agent has been in the comparable homes and can shed light on the differences. Surprisingly, since the guidelines have changed we haven’t seen a big increase in low appraisals. It could be that appraisers, whether local or not, are working extra hard these days to find the best comparables in a very close area, or it could be that listing agents have stepped up to provide more information to appraisers about recent sales in their neighborhood.
One thing that hasn’t changed is the problem of getting the “odd-fit” house through the appraisal process: a split entry in a 1920’s bungalow neighborhood, or an exceptionally upgraded home that may be smaller than its less-stylish neighbors. The problem is finding nearby comparable properties that have sold in the last six months. But that’s not your problem, Fishy ones—pick a good agent, trust the process, and soon you’ll be smelling only the roses. Good luck!
Some types of loans such as FHA and VA may require the appraiser to check for what they consider health and safety concerns. If the exterior of the house or garage has any chipping or peeling paint the FHA requires it to be scraped, primed, and painted before the closing. This kind of “work order” will have been negotiated as part of the purchase agreement, defining the seller’s limits of obligation. (We kept it to $500 maximum in our example). Most often the seller will take care of small work orders but occasionally the new buyer takes on the obligation. Usually the work is completed and re-inspected before the closing; but in the winter when exterior work can’t be completed the buyer’s agent or your agent will get bids from contractors to determine the cost; and the money needed for the repairs will be put into an escrow account at the closing. The funds are then disbursed to a contractor when the work is completed, as weather permits. Your agent will be communicating with you and the selling agent so that this can all go smoothly.
The buyers will get a chance to tour the home with their agent before the closing to make sure you’ve moved out completely (or are on schedule), and to check the condition of the property. Things they’ll be looking for:
- To make sure appliances are working properly.
- To make sure that any requested work has been completed
- Debris must be removed from house and garage.
- Property should be “broom clean” at a minimum.
- Any leaks under sinks, or in basement water lines.
Occasionally a seller has removed something that the buyer assumed was part of the house: perhaps a mirror hanging over a bathroom sink, or a pot rack hanging in the kitchen. This kind of misunderstanding is usually avoided by spelling out “gray area” items in the purchase agreement. But if the walk-through uncovers a situation like this you’ll need to negotiate with the buyer immediately, before the closing.
Conversely, you may find the buyers less than receptive when you leave an old but still-useful workbench in the basement; or original millwork in the garage rafters, removed from the house in a long-ago renovation. Of course, garden chemicals and pesticides need to be removed; leftover paints can be a problem, even if they match the existing colors in the house. The purchase agreement is clear: if it’s not attached to the property, and if there was no disposition spelled out in the purchase agreement, and if the buyer considers it to be debris, then the seller is obligated to remove it. Leftover debris is often handled by holding a small portion of the seller’s proceeds at closing to pay for removal, or as a guarantee that the seller (or listing agent) will be responsible for it. Agents need to be at their diplomatic best in all these walk-through discoveries and misunderstandings; obviously these aren’t deal-breakers, but a buyer and seller at loggerheads just minutes before closing can put a real damper on the party.
In most cases, however, the walk-through is a positive experience. Normally the surprises are pleasant ones: buyers appreciate a small welcoming gift that the seller has left for them, or notice that the seller has left the place in spotless condition. We recommend that you walk through with the buyers, to show them how to light the water heater or find the shut-off for the outside water line. It’s a chance for buyers to learn first hand about the house and neighborhood, and a chance for you to say a respectful goodbye to your home as you show them the ropes.
The day of closing can be both hectic and exciting, as sellers scurry to move out and buyers get ready to move in. Occasionally a last-minute problem has to be negotiated: a discovery during the walk-through, or maybe a change in the hour of possession because the movers showed up late. Rarely does a new problem arise at the closing table, although it may be at this time that a check or signature is required to finalize an informal adjusting agreement made just minutes earlier. Even with last-minute problems, most people are all smiles by paper-signing time.
So we’re off to our closing. Your title company has told you what to bring to the meeting:
- A photo ID
- A list of your addresses for the past ten years
- Your checkbook, in case of last-minute adjustments or charges
Title company closers do a remarkable job of taking buyers through a mountain of paperwork in a short time (most closings only last an hour). But, since you’re not taking on a mortgage, your portion of paperwork is mercifully small. We won’t get into a list of the documents required for buyers and sellers, but here are the bare bones of what happens at the closing meeting:
- The buyer agrees to pay the lender the amount specified on the new mortgage (the mortgage note), and pledges the house as collateral (the mortgage).
- The lender provides the mortgage amount specified (“funds the closing”) to pay the seller.
- The seller signs papers that pay off all existing loans and encumbrances, thus clearing title. Seller signs a deed that gives the buyer title to the property.
These things all happen virtually simultaneously (unless the seller has pre-signed due to time constraints or geographical limitations), along with various adjustments including prorating of property taxes, state mortgage and deed taxes, title company and lender charges, real estate broker commissions and fees—all spelled out on the HUD-1, a federal form that is a comprehensive accounting of all monies collected and disbursed at closing. You should have had a chance to look at the HUD the day before closing, but delay in preparation by the title company (often due to lender delays) sometimes prevents the early look we’d all like to have. So buyers, sellers, their agents and the loan officer (if present at the closing) should be prepared to check carefully at the closing table for anything that seems out of place, or missing. Such occurrences are very rare, however, and usually easily fixed.
The atmosphere at a typical closing is often surprisingly relaxed, given the enormity and complexity of a real estate transaction. Credit should go to the title company closers, who, seemingly without exception, handle their complicated jobs with pleasant efficiency. Buyers and sellers who haven’t already met get a chance to talk and learn about one another across the table as the property is smoothly transferred.
When all the documents are signed the closers leave the room to make copies and cut checks. While they are gone your River Realty agent will distribute a useful form that allows both parties to provide contact information for each other, and for you to shed light on mysteries such as, “when is garbage day?” You may need the buyers’ phone and email to let them know about a just-remembered detail; and of course it’s important for buyers to have a forwarding address for you, in case anything important-looking shows up in their new mailbox. At this time you’ll hand over the keys and any security codes; and when the closers return with document copies for everyone—and your long awaited, hard-earned proceeds check—the closing is over. You’ve sold your house. Congratulations!
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It’s been our pleasure to take you along on our journey through the selling process. We can’t guarantee that what you learned here will make it easy to sell your home; but if you’ve managed to stay with us the whole way you should have a good sense of the undertaking. Good luck!