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If you’re a first-time home seller, you probably don’t remember much about the closing process from the seller’s perspective because you were busy learning how to be a first-time home buyer! But, you likely remember there’s a lot to know and prepare for on closing day.
Closing costs, escrow accounts, title search...remember all of those terms? They’re back, and there’s more to know this time around as the seller. First-time home sellers, take a look at this list to get acquainted with the process. If you haven’t sold a home in several years, consider these steps as a refresher on what to expect during closing.
To help you learn or remember the real estate terms used on closing day, read our Home Selling Glossary.
Home Selling Beginning Steps
1) For a quick review, closing is the term given to the activities associated with buying and selling a house, from the time an offer is accepted until the buyers and sellers exchange keys on the closing date. Most homes close between 30 and 45 days.
2) You’ll need to open an escrow account early in the home selling process. An escrow account is a joint account into which both the buyer and seller deposit funds related to the transaction. A professional third party manages the account. Usually, your real estate agent takes care of opening the escrow account for you, but a For Sale By Owner requires the seller to open the account.
Closing Costs and Fees
3) The closing process can be expensive. You’ll have a choice to pay for closing costs the day of settlement or have it deducted from the home price. Either way, you should expect to pay 6% to 10% of the final sale in closing fees.
4) The seller typically pays for the listing and buyer’s real estate agent’s commission, around 6% of the sale. The remaining miscellaneous fees and taxes, from 2% to 4%, round out the total.
5) Depending on the contract’s negotiations, the seller can pay the escrow fees, but they can also split the costs between the buyer and seller. Your location dictates how much the escrow company charges services, typically about 1% of the sale price or a standard fee in the $200-$2,000 range.
6) In a traditional market, as the seller, you should prepare to pay most of these taxes and fees, but the buyers pick up some specific to their purchase.
- Title search. It ensures the seller is the outright owner of the property and there aren’t hidden claims or liens. In some cases, the homeowner may be unaware of outstanding issues. Depending on the depth of research needed, the search fees range from $150 to $1,000.
- Title insurance. Buyers obtain an insurance policy to protect themselves from real estate deals gone bad. If there’s a failure to find discrepancies with official documents such as county land records, tax liens on the federal or state level, or in bankruptcy court during the title search, the buyer has recourse. The policy also covers disparities found years later. Title insurance is a one-time fee.
- Fees owed on the property. You should account for delinquent utility payments, property taxes, homeowners insurance, and HOA fees. It's not uncommon for HOAs to require a payment to transfer to the next owner. It's possible that a portion of these fees can be prorated, depending on your scheduled closing date.
- Mortgage payoff and/or prepayment penalty. Closing requires a paid mortgage for the property to transfer. Check in with your lender to determine the payoff amount and if they attach a penalty for early payment. The penalty could come in a percentage of the remaining amount owed or a fee determined by the year the loan originated. (Get more information in Mortgage 101: Your Basic Questions Answered.)
- Transfer taxes and recording fees. Local laws play a big part in how transfer fees and taxes add up. Transfer taxes are based on the value of the property and how the county/city taxes transactions. The county government typically determines the recording fees, which pay for the administrative tasks of filing the deed.
- Attorney fees. Individual states decide whether or not an attorney is required to process closing. Their settlement fee is generally $2 per $1000 of the final sale price.
Inspections and Seller Credits
7) Most buyers require a home inspection before closing on a home. If an inspection report comes back with issues, the buyer and seller must negotiate terms to correct the problems. Several solutions exist. The owners could reduce the sale price or make the improvements or corrections themselves. Home sellers must come through with the negotiated plans to complete the closing process.
Learn more: Why You Need a Home Inspection.
8) During the home inspection negotiations, the buyers have the right to ask for specific certifications to ensure the health of the house. This includes the condition of the roof, termites, and/or sewer inspection. Certificates of proof are due at closing.
9) As the seller, you’re likely mandated by your state to submit a property disclosure report. This report identifies defects in the home that could alter the house's value or challenge the safety requirements. Because each state writes its own procedures, the regulations are somewhat different, but the reports are almost always due before closing.
10) Military home selling from a distance couldn’t be easier today; the process has been streamlined over the years. Implementing e-signatures has cut down on the importance of your physical presence in the office. However, a long-distance closing does require a real estate agent who has multiple rounds of experience. They’ll guide the process, coordinate time zones if needed, direct any mailed documents to the correct recipients, and assist with wire transfers.
11) On closing day, if you choose to be there, you’ll need several documents on hand to keep the process running smoothly. If you elect to pay for the closing costs outright, present a cashier’s check at the meeting. Also needed: a picture ID, a copy of the ratified sales contract, and all keys to the house, including doors, locked gates, and garage door openers. In many cases, the keys change hands at closing, but the swap could also happen later.
12) If you’ve decided to offer your buyer credit toward closing costs (also known as a seller assist or seller concession), you’ll see those negotiated numbers in the sales contract at closing.
13) Closing escrow means that the deal went well, and you should be on the receiving end of any profits left after closing fees and mortgage payouts. The hired escrow agent closes the account and handles the deed transfer to the new owner or lender.
Read What to Expect When You Close on a Home for more information.
Savings on Closing Costs
14) It's not a process everyone wants to try, but a For Sale By Owner can cut down on some fees of selling a home. For sellers with plenty of time to clean, stage, and market their property, a FSBO could save you money that you’d spend on a listing agent.
If you consider a FSBO, check out our free ebook, For Sale By Owner: Is It an Option for You?, and blog post, Do You Need a Closing Agent for Your For Sale By Owner?
15) It's possible to negotiate with your real estate agent for a lower commission rate, but you should bring up the subject early in the relationship and document the rate in your contract with the agent.
16) Discount brokers offer their services for lower percentages, but won’t provide a full-service experience that a standard real estate agent provides.
17) Most title, escrow, and settlement agencies set their own fees. Comparison shopping among offices in your area could help you find lower rates.
18) There’s a good possibility that, as a military home seller, you haven’t lived in your home for ten years. If not, you could be eligible for a title insurance reissue rate. If your title insurance policy was written to cover more time than you’ve owned the house, a reissue rate request might add to savings.
Prepare yourself early for the closing process by choosing an experienced real estate agent. Read over explanations of terms and fees, and dig into your financial records to decide if you have enough cash upfront to pay for taxes and fees or if it's better to deduct them from the home's sale. Don’t forget to find out how many mortgage payments you have left.
On average, the amount of time from listing your home until closing day takes about two months. Hot markets will move much faster, and slower markets won’t move as quickly. Regardless of the length of time, closing details remain the same.
By Dawn M. Smith
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