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For a first-time home seller, it may be hard to recall the details of the closing process, since being a home buyer may be the only experience they’ve had! There’s a lot to know and prepare for on closing day.
Closing costs, escrow accounts, title search...remember those terms? They’re back, and as the seller, there’s more to know this time around. For first-time home sellers, or someone who hasn’t sold a home in several years, consider these steps as a refresher on what to expect during closing.
Also, to help you learn or remember the real estate terms used on closing day, read MilitaryByOwner’s handy Home Selling Glossary.
Preparing to Close on a Home
1. For a quick review, “closing” is the term given to the activities associated with buying and selling a home, 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. A home seller will 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, the real estate agent takes care of opening the escrow account for the seller, but a For Sale By Owner (FSBO) requires the seller to open the account.
How Much Are Closing Costs for the Seller?
3. The closing process can be expensive. There will be a choice to either pay for closing costs on the day of settlement or have it deducted from the home price. On average, closing costs fees are 2% to 6% of the loan amount. An online closing cost calculator might be worth it in order to get an idea of how much is owed.
4. Until recently, it was expected that the seller would pay for the buyer’s real estate agent’s commission. Since the NAR lawsuit in late 2023/early 2024, the buyer's commission split is not on the MLS listing. The buyer should be prepared to pay their agent's commission or negotiate it into the purchase contract.
“Sellers would still be free to offer a commission to be split between the seller’s agent and buyer’s agent, in what had been the established 5 to 6 percent commission split. Sellers offering a traditional commission split would be a powerful concession that would likely draw the most buyer interest and potentially more offers.” -Kristi Adams, What the NAR Controversy Means for You.
5. Depending on the contract’s negotiations, the seller can pay the escrow fees, but also split the costs between the buyer and seller. Location dictates how much the escrow company charges for services, but it’s typically about 1 to 2% of the sale price.
6. In a traditional market, the seller should be prepared to pay most of the taxes and fees, but the buyers pick up specific fees for 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 $300.
- 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 like 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. Home sellers 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. Depending on the scheduled closing date, it’s possible that a portion of these fees can be prorated.
- Mortgage payoff and/or prepayment penalty. The closing process requires a paid mortgage for the property to transfer. Check in with a lender to determine the payoff amount and if they attach a penalty for early payment. The penalty could be a percentage of the remaining amount owed, or it could be 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 the county/city's tax rate on transactions. The county government typically determines the recording fees, and these pay for the administrative tasks of filing the deed.
- Attorney fees. Individual states decide if an attorney is required to process a closing. While some charge a percentage of the sale price, others charge $150 to $500 an hour, depending on the complexity of the sale.
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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 fulfill the negotiated plans to complete the closing process.
Why You Need a Home Inspection explains what sellers and buyers will learn about the property.
8. During the home inspection negotiations, the buyer may 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. Sellers are likely mandated by their state to submit a property disclosure report. This report identifies defects in the home that affect the house's value or compromise safety. Because each state writes its own procedures, the regulations are different, but the reports are usually due before closing.
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Closing Day
10. Military home selling from a distance couldn’t be easier today; the process has been streamlined over the years. Implementing e-signatures has reduced the need for your physical presence in the office.
However, a long-distance closing requires a real estate agent who has extensive experience. They’ll guide the process, coordinate time zones if needed, direct any mailed documents to the correct recipients, and assist with wire transfers.
Read What to Expect When You Close on a Home for more information.
11. On closing day, if the seller chooses to be there, they’ll need documents on hand to keep the process running smoothly. If the seller elects to pay for the closing costs outright, they should present a cashier’s check at the meeting.
A picture ID, a copy of the ratified sales contract, and keys to the house are also needed. Keys, including door keys, locked gates, and garage door openers, are typically exchanged at closing. Sometimes, the exchange can occur at a later time.
12. If the seller has offered their buyer credit toward closing costs (also known as a seller assist or seller concession), they will see those negotiated numbers in the sales contract at closing.
13. Closing escrow means the deal went well, and the seller will be on the receiving end of any profits left after closing fees and mortgage payouts. The hired escrow agent closes the account, and they handle the deed transfer to the new owner or lender.
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Savings on Closing Costs
14. Not everyone is eager to attempt it, but selling a home as a For Sale By Owner can help reduce specific fees. For sellers with plenty of time to clean, stage, and market their property, a FSBO could save money that’s otherwise spent on a listing agent.
Be cautious of working with a dual agent who offers discounted rates to work both sides of the sale. These individuals cannot serve both the seller’s and buyer’s interests equally, and they are deemed illegal or restricted in some states.
For more information on FSBO, check out our free guide, For Sale By Owner: Is It an Option for You?
15. It's possible to negotiate with the seller’s real estate agent for a lower commission rate, but bring up the subject early in the relationship, and document the rate in the contract with the agent.
16. Discount brokers offer their services for lower percentages, but they 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. By comparing prices of different offices in the area, the seller may find lower rates.
18. For military home sellers who haven’t lived in their homes for ten years or more, there’s a good chance that they’re eligible for a title insurance reissue rate. If the seller’s title insurance policy covers more time than they have owned the house, the military home seller can request a reissue rate to save money.
Prepare early for the closing process by choosing an experienced real estate agent. Read over explanations of terms and fees. The seller should dig into their financial records, and they should also decide if there’s 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 there are left.
On average, the time from listing a 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 time, closing details remain the same.
By Dawn M. Smith
Download the free guide we've created for home sellers, taking you from listing to closing on your home.
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