The closing is an important day for you as a home seller. You will transfer the property to the buyer, fully pay off any mortgages, and receive your sales proceeds. If you are using the proceeds for a new home purchase on the same day or shortly thereafter, it is particularly important that your closing runs smoothly. This article will help you figure out what to expect and how to avoid glitches.
COVID-19 WARNING: In light of the coronavirus pandemic that began in 2020, real estate closing procedures are being rethought and adjusted so as to minimize the amount of personal contact. Arranging all-digital closings will not be easy, however, and in some areas of the U.S. is even prohibited by law; for instance in places that require a notary to check original documents before validating a signature. A more digitized process than what's described below will, however, likely become the eventual norm.
Closing is when the house buyer and seller fulfill all of the agreements made in the sales contract. In more literal terms, it is about the transfer of money and documents so that you, the seller, can transfer ownership and possession of the property free and clear to the buyer. Also, you will pay off all loans that you are still carrying on the house and pay all of the parties who contributed documents or services to facilitate the sale and closing.
If you agreed to make any repairs to the property or take any other action to improve it, or to take action to clear title to the property (such as removing a shed encroaching onto a neighbor's property), all of these agreed-upon endeavors should be completed by the closing as well. The exception would be if you and the buyer made a separate contract for the work to be completed at a later date.
A closing is often called "settlement" because the seller, together with the buyer, the buyer's lender, the sales agents, and the seller's lender, are "settling up" among yourselves and all of the other parties who have provided services or documents to the transaction. To make this process secure and enable all of the parties involved to treat all of the closing tasks as having taken place simultaneously, you will most likely hire a disinterested third party, called a "settlement agent" or "escrowee."
The escrowee will take in all of the documents, money, and other items needed to close from the parties assigned to furnish them, pay out the money necessary to clear title, pay off all of the old lenders and lienholders, and pay the sales agents and other service providers.
Your closing will take place in the office of the escrowee. The escrowee is typically the title insurance company that insures the buyer's title to the property. However, in some places, such as Alaska or Southern California, you are more likely to close at the lender's office or at an escrow company.
Upon request, some title or escrow companies will send a mobile escrowee to close in a location convenient to all of the parties. Sometimes, the buyer's lender will host the closing and act as escrowee, or bring in a notary or escrow company employee to act as escrowee.
Your attorney, or the buyer's attorney, may offer his or her office, but recent restrictions in client trust accounting may make it impossible for the attorney to disburse funds immediately, so an escrow company may do the actual transfer of funds.
Sometimes the escrowee will take full responsibility for the closing, taking in and disbursing funds, explaining which documents are what, and sometimes even drafting (if the escrowee is a licensed attorney) some or all of the necessary documents.
Other closings are "witness-only." That means that a notary or attorney goes to the closing location selected by the buyer and seller to provide the documents and disbursement services on behalf of the buyer's lender. However, the notary or attorney will not explain the legal effect of the documents or the closing. Witness-only closings are not legal in all states. These closings will often occur in the attorney's office.
In some states, the seller will close through escrows that occur over a period of days or weeks. Other states, have what are known as "table closing," in which the entire closing, including the deposit of documents, funds, and other items required to close, and the final disbursement of all the escrow deposits, will occur at a meeting of the parties on a specific date.
Unlike the buyer, who may have to attend the closing to sign original loan documents delivered by the lender to the closing, you, as the seller, may or may not need to attend.
For either a conventional escrow closing or a table closing, you may be able to pre-sign the deed and other transfer documents. You may even give your attorney a power of attorney to sign any incidental documents for the escrowee. Your sales proceeds can be wired directly to your bank or your new home purchase escrow if you are purchasing on the same day as, or shortly after, your sale.
Attorneys and escrowees may differ on the issue of whether the seller should attend the closing. Some advantages of not attending are that you can use the time to attend to other important matters, such as completing your move. By not attending the closing, you may also avoid potentially tense conversations with a buyer who may be concerned about minor, immaterial defects and seek closing credits that are not required by the contract.
The closing is complete when the escrowee pays off your lender and other lien holders and service providers, pays your sale proceeds to you, places the deed (and the buyer's mortgage if any) for recording with the county recorder of deeds, and gives all other transfer documents to the buyer.
After a completed closing, you are no longer the owner of the property. Unless the contract or another side agreement states otherwise, you must relinquish possession of the home by giving the buyer all keys, garage door openers, and all other devices that control the home's systems and appliances.
You are expected to have completely moved your household and your possessions out by this time as well, and left the place broom-clean, at a minimum. Absent an agreement with the buyer that allows you to stay longer, you can be evicted, or the buyer may sue you for damages caused by your breach of the sales contract.
If you believe you may not be able to move out on or before the closing date, you should negotiate a post-closing possession agreement with the buyer, sometimes called a "rent-back." Ask the buyer for this as soon as possible, either at the time you negotiate the sales contract or well before the closing. The agreement should allow you to stay in the home for a specific amount of time in exchange for daily or monthly rent, depending on the length of time you will remain in the home. (In a hot market, however, an eager buyer may allow you to live in the house for a month or more rent-free.) The rent should cover your possession (you are now like a tenant in what was once your own home), hazard insurance, and real property taxes for the time you remain there. You will be responsible for any damage to the home that occurs during this time.
Shortly after receiving full payment of your outstanding mortgage loan, your lender should prepare and deliver a release of mortgage to you. Sometimes, the lender will send the original release to the escrowee or directly to the county recorder of deeds for recording, but it is important that you make sure the release is recorded and returned to you.
Keep this release and copies of all of the other closing documents. Your tax preparer may want to see one or more of these closing documents when preparing your taxes for the year of the sale. For more information, see the "Selling a House" section of Nolo's website.