The real estate world requires patience, flexibility, and good old-fashioned hard work. Apart from these qualities, how can you best prepare for your first home closing? Here’s what PinnaclePMC.com says new realtors need to know about the closing process from beginning to end.
Who is who?
You know a real estate closing needs a buyer and a seller, but who else is involved? Let’s take a look at the main parties.
- Real estate agents: Typically, both buyers and sellers are represented by real estate agents. If not, you may hear the phrase FSBO (for sale by owner.)
- Mortgage lender: This is who supplies the buyer with funds to purchase the property unless the buyer can pay in cash.
- Title company: The neutral party that conducts the title search, holds escrow, creates closing documents, and collects and disburses funds at closing. They are also the ones to facilitate the closing itself.
Negotiating
Before securing a contract for your client, you’ll need to flex your negotiating skills.
Step one: After the buyer’s agent has done their research and planned a winning-bid strategy, they’ll submit an offer to the seller’s agent. This offer will specify a purchase price, escrow deposit, and all of the terms and conditions of the sale.
Step two: Upon receiving an offer, the seller side has three options: accept, reject, or counteroffer. At this point, both agents get to decide which terms they’re willing to compromise on and which items are nonnegotiables. As a new agent it’s important to be transparent with your clients and have a good understanding of what they’re looking for so you know what to prioritize in negotiations.
Step three: After some back and forth, you finally reach an agreement and go into contract. Unless there is a cancellation or an addendum to the contract, these terms and conditions are final.
Choosing a title company
One of the things you’ll negotiate before signing the purchase contract is the title company. This team will conduct the title search, hold escrow, create closing documents, and pull together all the moving pieces for closing. The title company plays a crucial role, so you’ll want to choose a well-trusted, professional team with a reputation for taking care of its clients.
The inspection and appraisal
Both the inspection and appraisal serve to evaluate the property – but how do they differ?
The inspection: Looks at the physical condition of the property and checks for damages and safety issues. Typically comes before the appraisal. A licensed home inspector will conduct an in depth inspection of the home and test several of the home’s major systems. They will give recommendations for repairs and replacements.
The appraisal: Determines the property’s market value and how it compares with similar properties in the area. The appraisal is more of a walkthrough assessment followed by market research of the home’s features, location, and finishes. A licensed appraiser will then determine a fair market value.
Both of these assessments can impact the closing in significant ways. Be prepared for further negotiations should the inspection or appraisal turn up anything unexpected.
Clean title
Clean and cloudy title: The terms used to describe a property with or without existing title issues. These problems can be unpaid liens or even ownership claims. It is the title company’s responsibility to clear these issues before closing so none of these issues are transferred to the new buyer.
“Clear to close”
Ah, the three magic words that will quickly become music to your ears. Clear to close is a phrase you will hear from the mortgage lender once the buyer’s application has successfully passed through its underwriting process and received final approval. You may also hear this phrase from the title company if there were any title-related issues for them to clear.
You need a “clear to close” from both the lender and the title company to proceed to closing.
Final walkthrough
Before your clients sign all of the paperwork on closing day, you’ll do a final walkthrough. This is to make sure the seller has vacated and that the property’s condition is the same as what was agreed upon in the contract.
If something related to the property is inconsistent with the contract terms, you may need to delay closing until the seller can resolve the issue or until you draft an addendum to the contract.
The closing table
After a hard-fought journey, you finally get to bring your clients to the closing table. Here, the buyers and sellers will sign the closing documents and exchange keys. The title company may need to scan the signed documents to the lender for approval. Once this has been finalized, they can distribute funds to all parties – AKA, you get your check!
