Close of Escrow

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Close of Escrow

You must complete the escrow process before considering the purchase of real estate. It entails a series of steps, and the closing of the escrow is one of them.

This article, Close of Escrow, aims to tell you what the close of escrow is, why it is essential, and what it entails. By the end, you should understand what is happening behind the scenes before you receive your keys.

 

Escrow Close Definition

Close of escrow signifies the closing of escrow, and the property and funds are in the hands of the buyer. The seller and you have received their payments, so you can now move into the home.

For escrow to close, the buyer must make a good faith earnest money deposit to the seller. This gives the buyer extra time to secure funding, and the money remains in an escrow (or trust).

An escrow company holds all of the buyer’s funds in trust for the listing agent, who then transfers the funds to the seller. An escrow company also uses another meaning: purchasing a property that uses a third party (Escrow Company) to handle all funds.

A single escrow officer handles the transactions for purchasing a house, essentially acting as a middleman between buyer and seller. Their role is to facilitate the selling and buying process.

 

Checklist for Closing Escrow

Getting all your paperwork in order and proceeding with the closing is the next step once you know the closing timeline. Here’s a handy checklist of what you and your buyer need to do during this time, along with some tips on making this process go smoothly and quickly.

 

Escrow account for buyer’s deposit

Both parties need an escrow account to hold the buyer’s funds until the purchase agreement ends. The first thing you must do once you have chosen an escrow company is to wait for your buyer to deposit the assets into the newly opened account.

You will receive the earnest money deposit from your buyer through an escrow agent who acts as a neutral third party until closing when the money will finally be released and credited to your account. Depending on where you live, escrow companies or attorneys can act as escrow agents.

 

Ensure your title

In addition to your agent, you will need to order a title search with your help, which will verify that you are the legitimate owner of your property. You might think it’s unnecessary, but any unknown claims could cause the deal to fall through or delay closing considerably!

Regarding your buyer and their lender, title insurance is necessary to go ahead, so getting it beforehand can protect you from unseen claims or judgments. Discuss the pros and cons of getting owner’s title insurance as a seller with your real estate agents to reduce the chances of financial loss for both parties involved.

 

Inspect and appraise the property for the lender.

Sometimes, you have completed all appraisals and inspections before working with a title company. In contrast, others might still require one final pest inspection before closing. Before closing, make sure you clear all contingencies from the sale contract!

An inspection will generally detect any safety problems or functional issues with the home, including electrical problems, water damage, leaky faucets, and broken windows. Still, an appraisal will determine the home’s market value. For this reason, the latter procedure is crucial to ensure your closing goes smoothly:

If your property’s appraised value is lower than your loan amount, it might halt the sales process and force you to negotiate your price again. Once all contingencies are met, both parties will move on to the review phase, but if the inspection and appraisal do not meet the agreement, the process may end there.

 

Be sure to review all closing documents.

You will then be able to review all seller disclosures and all title documentation with your buyer and their agent. In addition to reviewing the buyer’s documents, you will examine the appraisal report, inspection report, and mortgage loan approval documents with your closing agent.

You should check all documents carefully and ensure your buyer gets an accurate HUD-1 form that details all closing costs one day before closing.

 

Inspection of the final walkthrough

Final inspections are mainly formalities, but in some cases, they may take place even on the closing date. In addition to verifying that all components of the property are working, that all necessary alterations took place, all rooms are clean and free of any new damage, and no extra items are left behind, the buyer and their agent will visit the property to verify all items are in working order.

You must address any problematic items discovered by the buyer during this final visit, or the closing could be significantly delayed.

 

Service cancellations and utility cancellations

You should turn off all utilities in your name before handing your keys to your new owner! You must contact your home’s utility providers at least 48 hours before an official closing date and provide them with your new address.

Although canceling all home services before an official closing date is strongly discouraged, you should contact them. If you need to remember something regarding ending home services and utilities after closing, we provide a list of valid numbers you can refer to.

 

Complete the sale and close it.

Once you have all the documents in order, we can finalize the sale, exchange keys, and have your check ready! To make your deal official, you only need to bring a little to your escrow officer’s office at the close of escrow.

If your agent instructs you to get any outstanding documents, such as proof of completed repairs, it will be necessary for you to have a government-issued photo ID, keys to the property, and the keys.

All parties involved will receive a settlement statement, which summarizes and details the financial transactions involved. The buyer will sign this statement, then by you, and then by the closing agent to ensure accurate figures.

It is possible to make arrangements if you cannot attend the closing, depending on the circumstances and how much notice you give the agents.

As the seller, you have signed the contract and will receive an agreement statement detailing the purchase cost, closing costs, and net profits. You’ll also get it once there’s confirmation that escrow will transfer funds. Your buyer will finally take possession of your property on the same day that escrow closes, which is the best step: you will receive payment.

A check or an electronic funds transfer is possible at the closing, depending on how you wish to receive the funds.

 

Closing Date vs. Close of Escrow

The closing date might coincide with the close of escrow if the seller attends, but it could also be on a different day if the seller does not follow.

 

Closing Date vs. Close of Escrow

 

This is best thought of as the day when you and the seller have fulfilled their obligations to each other at the closing of escrow. If you provide the earnest money to the third party, your obligations to each other are taken care of. The seller offers title documents and the keys unless the contract allows them to stay for a long time.

The Close of Escrow usually takes between 30 and 60 days. The seller does not need to be present for the mortgage closing and title and deed pickup.

 

The Basic Steps to Closing Escrow

To close escrow, you must complete the steps.

 

Deposit Good Faith with Escrow

The buyer will provide good faith deposits or earnest money deposits. This deposit is a statement that the buyer intends to complete the transaction seriously. Your escrow agent will deposit the good faith deposit into the account. Down payments and good faith deposits are separate. There will be a fixed or percentage-based amount for the good faith deposit.

 

Sign the disclosure

Sellers must also complete a seller’s disclosure document, which outlines all the specific conditions of the property that they are selling. The document must describe all previous occurrences that may affect the buyer’s interest in buying the property.

Many states require sellers to disclose everything relevant to the deal; otherwise, the buyer could renege on the contract without legal repercussions, or the seller could remain liable if significant flaws remain hidden.

 

Inspections required

Home inspections and appraisals are the next steps in closing escrow after the Seller’s Disclosure is approved. As part of the home inspection, a professional looks for any damage and determines whether repairs are necessary. If any issues arise, the seller can agree to fix them.

This stage of the escrow process may involve the following inspections:

  • Pest and termite inspections
  • Inspection by an agent
  • Inspection of lender appraisals
  • Inspection of the home

 

Escrow documents review

Next, make sure to review all relevant escrow documents provided to you. Both buyers and sellers should review the necessary documents pertinent to the sale of their home thoroughly.

Among the documents you should review are:

  • Application for a mortgage
  • There was a signature on the mortgage deed
  • Deed of transfer
  • The bill of sale
  • Affidavit of Seller
  • Disclosure at closing

 

Perform a final walkthrough.

An opportunity for the buyer to take one last look at the property occurs during the final walkthrough.

A house walkthrough is not required, but it would be a good idea. Check that it is in the same condition as when you agreed to buy it.

Inspect to ensure that nothing has been damaged since your last inspection. Also, check if the seller is following through. If you discover significant damage to the property, you may be able to get the seller to fix it, but you cannot back out of the deal at this point. Final walkthroughs usually occur 24 hours before closing.

 

Document signing

After the final walkthrough, you’re nearing escrow’s closing. The buyer, the seller, the real estate agents, the title company, and the escrow representative must get together and sign the required documents before the sale closes. You also need to pay the closing costs and down payment.

 

Do You Need Any Documents for Escrow Closure?

Depending on how you fund the purchase, you’ll need specific documents to close escrow.

If you are paying cash, you will need a transfer deed. After signing the deed, having it notarized, submitting it to the court, and closing escrow, you must provide other documents to close escrow. Since most home buyers will obtain a mortgage loan, they may also need the following documents:

 

Transfer deed:

The seller will still need to transfer the registration of the property to the buyer when they take out a mortgage loan.

 

Bill of sale:

Several items appear in a bill of sale. These include appliances, furnaces, air conditioners, security systems, light fixtures, and anything else negotiated during the purchase agreement.

The seller must provide a notarized vendor’s affidavit. It states that the seller owns the property. This document should also list any existing leases or liens on the property.

 

Mortgage:

It is a legal document that indicates you are eligible to take out a loan to fund your sale. The city registers mortgage deeds, which then become liens on the property.

 

Mortgage Application:

In most cases, lenders require an updated loan application during escrow. This ensures they know of any changes since your first loan application began, such as employment or salary changes.

 

Closing disclosure:

Closing disclosures vary from lender to lender, but you must sign them to demonstrate that you understand the mortgage process.

The title and loan type are complex if your lender requires additional documents.

 

Bottom Line

Your real estate agent will oversee this escrow process, so do not worry if you don’t understand every detail. However, you should know what happens in any transaction where so much money is at stake. This action will help prevent others from taking advantage of you or losing your home.

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