After a real estate deal has been negotiated between a buyer and seller and an agreement is reached, it’s time to go through the steps to actually close the deal.
Buyers may have spent a lot of time and effort searching for the perfect home and visiting many listings, and sellers may have done the same by marketing their home and holding open houses. But the work is not over yet. In fact, there are still several tasks that need to be done before a real estate deal can close.
Whether you’re on the buying or selling end of a real estate transaction, the following steps will need to be completed before the deal is sealed.
1. Escrow is Opened
After a real estate contract is signed by both the buyer and seller, the escrow process will start by opening escrow with a neutral third-party. The escrow company will handle the money and contracts involved in the real estate deal.
The purpose of escrow is to make sure that each side is acting in accordance with the contract and to ensure that the money involved is dealt with appropriately and securely.
2. A Title Search is Conducted
A title search is important because it provides the buyer with the chance to verify whether or not the seller is actually legally allowed to sell the home. For example, the seller might be trying to sell the home on their own, but an ex-spouse is also on the title, which means they would both need to be part of the transaction in order for it to go through.
There could also be clouds on title, such as liens, which can make the transfer of title much more complicated.
A title search will find issues like these so they can be rectified before the sale goes through. Title insurance can also be obtained in order to legally protect the buyer from any long-lost owners from popping up in the near future and claiming the home as theirs.
3. Contingencies Are Fulfilled
There can be any number of contingencies that both the buyer or seller can include in the contract. The most common are financing and home inspection contingencies.
A financing contingency gives the buyer some time to apply and get approved for a mortgage to finance the home purchase. If they are unable to secure financing, the contingency will provide them with a way out of the deal so they can get their earnest money deposit back and protect themselves from being sued by the seller.
A home inspection contingency is designed to give the buyer some time to have a professional inspector investigate the condition of the home to see if there are problems that could spoil the deal.
4. Final Mortgage Approval is Provided
It’s highly recommended for buyers to get pre-approved for a mortgage before the house hunting progress starts. This will help buyers determine how much they would be able to get approved for and narrow down their search for homes that fall within their price range. It also helps get the process moving along once you find a home and an offer is accepted.
But the actual final mortgage approval process cannot start until after offer acceptance. The buyer’s lender might already have all the financial information they need, but they will also need a copy of the purchase agreement to find out exactly how much was agreed to be paid for the property.
The lender will then have a professional appraiser determine the precise market value of the home to make sure the lender isn’t dishing out more for the home than it’s actually worth.
5. Contingencies Are Removed
Contingencies such as the ones just mentioned will come with their own respective expiry dates before which they must be either fulfilled or waived. Your real estate agent will help you determine the appropriate amount of time that will be required to fulfill these contingencies.
Once the contingencies are fulfilled or waived, they will need to be removed from the contract in writing.
6. Final Walk-Through is Conducted
The buyer should have the opportunity to conduct a final walk-through to make sure the home is in the same condition as it was when they first agreed to buy it. It will also give buyers the chance to ensure that all items that are supposed to be left behind are still there and that all other items are removed according to the contract.
7. Final Papers Are Signed and Keys Are Handed Over
On the day of closing (or even the day before), the buyer will sign a number of documents in order to seal the deal. The paperwork can be quite lengthy but is all part and parcel of closing a real estate transaction. If everything is as it should be, the title will be transferred, the money will be distributed appropriately, and the buyer will be given the keys to their new house.
The Bottom Line
Real estate deals go through a pretty lengthy process from the time an offer is accepted between a buyer and seller to the time the buyer actually has the keys in their hands. Considering how in-depth the process can be and the number of steps involved, it’s always advised for both buyers and sellers to be represented by a seasoned real estate agent to make sure that each step is completed appropriately and the closing process can be completed without a hitch.