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 is 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 where they came from. First-time home sellers, take a look at this list to get acquainted with the process. For those who haven’t sold real estate in awhile, consider these steps a refresher on what to expect during a home seller’s closing.
Don’t get confused! MilitaryByOwner’s Home Selling Glossary gives simple answers to your home selling questions.
What Home Sellers Should Expect at Closing
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 keys are handed over on the closing date. Most homes close within 30 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. Normally, your real estate agent takes care of opening the escrow account for you, but a For Sale By Owner requires the seller to open.
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 price of the home. Either way, you should expect to pay 8% to 10% of the final sale in closing fees.
4. The seller normally pays for the listing and buyer’s real estate agent’s commission, around 6% of the sale. The remaining fees and taxes round out the total, anywhere from 2% to 4%.
5. Abiding by the contract, the seller can pay the escrow fees, but they can also be be split between the buyer and seller. Your location dictates how much the escrow company charges for their services: typically either about 1% of the sale price or a standard fee in the $200-$2,000 range.
6. Count on most of these taxes and fees being paid by the seller.
- Title search. This ensures the seller is the outright owner of the property and there are no hidden claims or liens. In some cases, the homeowner may be unaware of any outstanding issues. Depending on the depth of research needed, the search fees range from $150 to $1,000, according to Realtor.com.
- Title insurance. Buyers obtain an insurance policy to protect themselves from real estate deals gone bad. If during the process of title search, there is 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, the buyer has recourse. The policy also covers disparities found years later. Title insurance is a one-time fee.
- Fees owed on the property. Such as: 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 the form of a percentage of the remaining amount owed, or a fee determined by the year the loan originated. (Get more information in the article Mortgage 101: Your Basic Questions Answered.)
- Transfer taxes and recording fees. Local laws play a big part in how much transfer fees and taxes add up to be. 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 they close on a home. If an inspection report comes back with issues, the buyer and seller must negotiate terms to correct the problems. Several options exist. The sale price might be reduced, or the seller may prefer to 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 certification to ensure the health of the house. This includes the condition of the roof, termites, and/or sewer inspection. Certificates of proof are due during 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 value of the house or challenge the safety requirements. Because each state dictates the procedures, the set of regulations is somewhat different, but the reports are almost always due prior to closing.
The Day of 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 right recipients, and assist with wire transfers.
11. On the day of closing, if you choose to be there, you’ll need to have 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 that the house requires. These are likely keys to doors, locked gates, and garage door openers. In many cases, the keys change hands at closing, but the swap could also be executed 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 transfer of the deed to the new owner or lender.
For more information, read What to Expect When You Close on a Home.
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 own property, a FSBO could save you money that you’d spend on a listing agent.
If you do 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 Discussing a change in commission rate should be brought up early in the relationship and documented 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 offers.
17. The majority of 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 10 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 up front to pay for taxes and fees or if it's better to have deducted from the sale of the home. Don’t forget to get a solid idea about how much of the mortgage is yet to be paid.
On average, the amount of time from listing your home until closing day takes about 2.5 months. Hot markets will move faster, and slower markets won’t move properties as quickly. Regardless of the length of time, closing details remain the same. Let this list guide you through the closing process.
After you’ve become familiar with all the home seller’s closing needs, be sure to read over more of our resources and articles that were created to help sellers, buyers, and renters navigate the entire process of relocation.
By Dawn M. Smith