An Overview of the Closing Process

The closing process includes ten basic steps. These include:

  •   The buyer applies for a mortgage loan and provides you with a preliminary loan approval letter
  •   You and the buyer sign the sales agreement
  •   The buyer's deposit is placed in an escrow account
  •   The buyer schedules the necessary inspections
  •   You complete any work that is necessary following the inspection, (if required by the contract)
  •   You take care of any issues that are necessary to create a clear title
  •   The buyer receives final approval on his or her mortgage
  •   You and the buyer complete a final walk-through of the property
  •   You and the buyer sign the final papers and closing documents, including loan documents and the deed to the house
  •   You hand the keys over to the buyer and collect your money

Creating the Sales Agreement

Your sales agreement serves as a document stating the terms of the sale. To assist with the process of creating a sales agreement, you and the buyer should write an unofficial list of the items you wish to see included. While this list should not be binding, it gives the attorney an outline of what you both expect to see in the final draft. Information included in the sales agreement include:

  •   The sales price and the amount of the deposit
  •   Financing contingencies or cash
  •   The closing date and deadlines
  •   Items included in the sale, such as appliances
  •   Details on which parties are paying what closing costs

It is not recommended that a draft of the terms be signed. Otherwise, it could be interpreted as a contract if a disagreement arises between you and the buyer.

Completing the Inspection

With the sales agreement completed, you now need to coordinate with the buyer in order to complete a home inspection. Some home inspections are quite detailed and take hours to complete, with the inspector examining everything from the roof to the foundation and everything in-between. If problems are located during the inspection, you may need to make the necessary repairs before you can finalize the sale. If so, the terms of this should be clearly laid out in your sales agreement. If you don't make the repairs, the mortgage lender is not likely to sign off on the loan. Furthermore, failure to make these repairs gives the buyer the option to back out of the deal.

Keep in mind that you are also responsible for disclosing any defects that your house may have. If the buyer encounters any damage after purchasing the home that you did not tell him about but that you knew about, you could be liable for damages. For this reason, many states have mandatory disclosure laws in place. According to these laws, you must provide interested buyers with information about any defects that you know about the house, such as structural problems or water damage. Since you may also be held responsible for any unknown defects, the inspection will help you make sure you are making all of the necessary repairs to absolve yourself from any issues that may arrive after the closing is complete.

After you have disclosed all of the information regarding your home and have made any necessary repairs, be sure to have the buyer sign a disclosure statement. This will help protect you if the buyer later claims you did not make him aware of defects. This is also an area where you may need an attorney to help you properly create the statement.

Selling AS-IS

If you have agreed to sell the property in AS-IS condition, the buyer still has the right to inspect your home. If any defects are found, however, you are not required to repair them. Instead, the buyer has the option to complete the sale or to be refunded the deposit. Selling a home in AS-IS condition is a common practice among FSBO sellers, but this option typically attracts buyers who are looking for a discount on the price. Keep in mind that a disclosure of known defects is still required with an AS-IS sale.

Obtaining a Title Report and the Closing Process

A title report provides information regarding any problems related to your title. This step will most likely be handled by your attorney, escrow company or title company. The title research process begins when a fully signed contract is completed. If you have any outstanding liens, an encumbrance, an easement or any other issues that could prevent your title from being clear, this information will show up on your report. Whatever the issue may be, you are responsible for resolving the issue before moving forward with the sale.

In all, the entire closing process typically takes 30 to 45 days to complete if the buyer is taking out a mortgage loan. If the buyer is paying with cash, the process should take less than 30 days. At the final closing, all of the existing loans will be paid off, the new loan will be signed and recorded and you will transfer ownership to the buyer. Your sales proceeds should be given to you at closing in the form of a check or wire transfer.