Closing the Deal
Estimated Closing Statement, Avoiding the Curse of December Closing, Final Closing Statement, Closing Day, Move In After a Seller Rent-Back, Final Verification of Condition
Estimated Closing Statement
During your initial contact with the closing officer, request an estimated closing statement based strictly on your known closing costs at that time and assuming the deal closes as scheduled. This statement obviously won't be precise. Factors such as whether you'll have to give the buyers a credit for repairs and if so, how much, have yet to be determined. This will give you an approximation of your expenses of sale.
Get the estimated closing statement updated a week before scheduled closing. At this point, very few questions should remain. Check your second estimated closing statement extremely carefully, line by line from top to bottom, to be absolutely certain that it accurately reflects your credits and debits.
Avoiding the Curse of December Closing
Closings are perverse creatures under the best of circumstances. They're proof positive of Murphy's Law, which states that whatever can go wrong will -- and always at the worst possible time. The list of surprises is unpleasantly long -- missed deadlines, title glitches, problems paying off existing loans, changes in the buyers' loan terms, insufficient funds to close escrow, and the like.
December closings are notoriously perverse. Holiday partying saps people's strength and reduces their effectiveness. Folks forget to sign papers before going on vacation. December 31 is an immutable deadline if you must close this year for tax purposes. If you end up with a December closing, here are some steps you and your real estate agent can take to make sure that you meet your deadline:
- Stay in touch with your closing officer. Don't let your file get buried in a pile of pending closings on the corner of your closing officer's desk. You or your agent should check with the closing officer every few days to make sure that everything is going smoothly.
- Order loan demands as soon as possible. You must pay off any of your existing loans that are secured by the property before the buyer can have a new mortgage put on the property. Instruct your closing officer to order payoff statements on all of your existing loans immediately. Lack of receipt of loan payoff statements is the single biggest cause of escrow delays.
- If you're leaving town for the holidays, tell your agent and closing officer well in advance of your departure. Special arrangements can usually be made to close -- no matter where you are -- if people have advance warning and know how to reach you. The key to success is keeping everyone posted.
- Check the calendar. Many offices only stay open until noon on Christmas Eve and New Year's Eve. When Christmas and New Year's Day fall on Saturday or Sunday, office hours get extra crazy. Some businesses and public offices close the preceding Friday, others close the following Monday, and still others close both Friday and Monday to give their employees a four-day holiday. Be sure to check the holiday office schedule of your agent, closing officer, and other important people in your transaction.
- Allow time between the date you want to close and the date you must close. Give yourself maneuvering room to resolve last-minute problems that inevitably appear when you least expect them. Don't schedule your closing on the last business day of the year. You'll have no margin for error if you need to close by year's end.
Too many deals fall through needlessly, simply because parties didn't follow through. Buyers, sellers, and agents often say that a house has been sold as soon as the purchase contract is signed. You and the buyers have only ratified an offer at that point. Your house isn't sold until your closing.
Final Closing Statement
One of the most important pieces of paper is the final closing statement that you get on the day that your home actually closes.
The final closing statement is like your checkbook, it records all the money related to your home purchase:
- Credits: Any money that you receive during closing is shown as a credit to your account. The largest credit is for the amount of the sale price. You may get a credit from the buyers for the unused portion of property taxes you prepaid. You get a check from your insurance company for any unused portion of your homeowners insurance premium. By the same token, if your lender collects extra money from you each month that goes into an impound account used to pay your property taxes and homeowners insurance premiums, any excess funds in the impound account are paid directly to you by the lender after the sale closes.
- Debits: Debits are funds paid out during closing on your behalf. Your largest debit is usually the mortgage payoff. Other major closing costs listed as debits are the real estate commission, local transfer taxes, any corrective work credits you give the buyers, and, depending on the date the sale closes, a credit to the buyer for your share of unpaid property taxes. The list also includes an assortment of small charges for notary fees, recording fees, document preparation fees, messenger fees, and so on.
Keep a copy of the final closing statement for your files; you'll want to refer to it when you prepare your income tax return. Some expenses of sale (such as the real estate commission, mortgage prepayment penalties, and property tax payments) are tax deductible. Furthermore, the closing statement establishes your initial tax (cost) basis in the property.
Closing Day
Determining when the buyer actually takes possession of the house and move into it depends on the terms of your contract and may be dependant on the state in which you live.
Regardless of whether you move out of your house the day of closing or the following day, you can work with Fran Campbell, Inc. and your agent to coordinate the disconnect of utilities and phone service. Carefully coordinate canceling your homeowners insurance policy with your insurance agent to avoid any gaps in your coverage.
Move In After a Seller Rent-Back
Sellers sometimes stay in their house several weeks after closing while waiting to get into their new home. If this situation happens to you, you'll sign a separate rent-back agreement with the buyers, which becomes part of your purchase contract. The rent-back agreement covers who pays for utilities and maintenance, what happens if property damage occurs after the closing, how much rent you must pay the buyers, and what penalties result if you don't vacate the house on the date specified in your rent-back agreement.
- Sellers customarily pay rent equal to the amount the buyers must pay for Principal and Interest on their mortgage plus property Taxes and Insurance, so they break even on the cost of owning the house during the term of your rental. PITI, as this figure is known, is prorated on a per-day basis from closing until you vacate the property.
- For example, suppose that PITI is $50 per day, and you expect to be out three weeks after closing. You and the buyers instruct the closing officer to hold four weeks PITI so you both have a cushion if you encounter an additional delay moving into your new home. When you move, you and the buyers jointly instruct the closing officer to pay the buyers $50 per day for the actual rental period and to refund the unused portion of funds to you.
Final Verification of Condition
If you vacate your house prior to the close, the buyers may ask your permission to start fixing the house up before closing. Painting or waxing floors is much easier and faster if the house is empty. Instead, suggest that the buyers allow some time to do these tasks before moving in and after the closing has taken place.
The final verification of condition
Most residential real estate contracts contain a "Final Verification of Condition" clause.
- This clause allows the buyer to inspect the property a few days before closing to be sure that the property is in the same general condition that it was in when they signed the contract to buy it. If there are any unexpected problems, chances are you and the buyer can work out a mutually satisfactory solution.
- It is in your best interest to maintain your property inside and out until closing. Make sure that the movers don't damage the property when removing your belongings. Unless you and the buyers make other arrangements, your property should be left "broom clean" -- remove all garbage, trash, and litter, and then vacuum carpets and sweep floors.
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