Closing on the purchase of a parcel of land where you will build your new home is, in principle, straightforward: You give the seller the agreed-upon sales price and the seller gives you the land.
In practice, however, the process is more complicated. The closing procedures for buying vacant land are simpler than for buying an existing home – especially because you don’t need to worry about lead paint, radon, or any other issues relevant to built structures. At the same time, when buying an existing house, you can count on the lender’s expertise. With vacant land, unless you’re financing the purchase with a bank loan, you may need to rely more extensively on your own preparation and diligence.
In any event, it’s well to understand how your closing will work, even if you’re relying on the bank’s closing attorney to supervise the process.
Every closing reflects the terms set forth in the purchase and sale agreement. You will want to assure yourself that you are receiving everything you bargained for and that all of the conditions and contingencies you put in the purchase and sale agreement have been met.
If you’ll be obtaining bank financing, and local lending practice calls for presenting you with a loan package (including loan documents), you’ll want to look at the deed and loan documents prior to the closing. You won’t have nearly enough time to read and think critically about this documentation if you’re seeing it for the first time at the closing. Otherwise, review the commitment letter, loan summary, or other material that the bank will have provided at the time of the financing commitment.
For those who apply for a mortgage on or after October 3, 2015, two new forms, called a "Loan Estimate" and a "Closing Disclosure" are required in many mortgage loan transactions, including loans secured by vacant land. These forms are designed to help you better understand the mortgage loan transaction and bring together all of the financial information for your transaction from both the buyer and the seller’s point of view.
Make sure all inspections have been completed and you have the resulting reports. Check to see that you have all required surveys, soils logs or septic system designs and other engineering, and confirm that all contingencies have been satisfied. For example, your agreement may be contingent on the seller’s designing a septic system for the land and obtaining a permit from the local board of health for its installation.
Plan to walk the land just before the closing you want to be sure that it hasn’t changed in any material way from the last time you saw it. People occasionally dump trash or old appliances on vacant land, or cut trees, or remove sand or gravel. You’re entitled to take possession of land that’s in the same condition as when you decided to purchase it.
Your bank will require that you obtain – and, typically, pay for – title insurance. Whether you’re using bank financing or not, it’s prudent to have title insurance in place. The most careful title search can fail to turn up easements, liens, or other encumbrances that may make your land unmarketable in the future or significantly impair its market value. A boundary dispute with a neighbor, for example, may arise long after the closing and involve two conflicting perimeter surveys, thus requiring the intervention of a title insurer.
Virtually all title insurance is written by national title insurance firms. Review the report before the closing. If problems are indicated, for example, a mechanics’ lien that nobody remembered to remove from title when a contractor’s bill for installing a border fence was finally paid, you want as much time as possible to resolve them.
You can close either “in person” or “in escrow,” depending on the convenience of the buyer, the seller, the broker and the bank.
An in-person closing means that every party to the transaction or that person’s representative appears in person, usually at the registry office at which the deed and other closing documents will be recorded. That allows you to run title down to that very moment and complete the closing on the spot: you have the confidence and the satisfaction of knowing you own what you just paid for.
An in-escrow closing usually takes place at an attorney’s or bank’s office, where a designated representative, for example, the bank’s attorney, will record the deed and distribute the checks at the end of the day or week. You’re surrounded by all of the technological conveniences of a modern office, which is handy in case you need to change documents before they’re recorded.
Real estate closings can seem mechanical: A bank’s attorney may sit at the head of the table, handing document after document to you for signature while the seller waits for a check. But careful review of the documents that will be executed at the closing, and the assurance that those documents are properly recorded, will give you the confidence that you’re actually getting what you purchased and that some technical error won’t deprive you of something you've worked hard to achieve.