Home Selling Step 6: The Purchase Agreement and Closing
It might seem that once a purchase agreement has been signed that the selling process is complete. Not only is it not over yet, but some of the most complex aspects of a real estate transaction now begin.
Once a contract for the purchase of a home has been accepted, a series of inspections and checks are typically required to satisfy buyers and lenders. Your REALTOR® will help complete the transaction process by assisting with the many requirements found in a typical purchase agreement. Your REALTOR® will also help prepare for closing, that is, finalizing the sale.
What’s in a Purchase Agreement?
A purchase agreement sets a purchase price for the home and a series of terms and conditions. For instance:
- Contracts routinely depend on the ability of a buyer to obtain financing and/or sell their current home, which is why most sellers prefer buyers with mortgage pre-approval letters.
- A growing percentage of transactions involve a home inspection, or a physical review of the home by a trained and independent observer. Generally the buyer’s agent arranges the inspections, which the buyer typically pays for.
- Lenders will establish numerous conditions before granting a loan. They will want a title exam, title insurance to protect against title errors, termite inspections, surveys and an appraisal to assure that the home has sufficient value to secure the loan.
When Should You Close?
With online transaction management now available, closings can occur within a week if necessary. In practice, it takes time to arrange financing, conduct inspections, obtain appraisals, locate replacement housing, contact movers, pack and actually move.
While instant closings are not practical, neither are closings too far in the future. The problem with closings much past 60 days is that loan rates are difficult to lock in. If mortgage rates go up, it's possible that the buyer will no longer be able to afford the home and thus the deal may fall through.
The result of these considerations is that most homes close within 30-45 days after a sale agreement has been signed.
Completing the Agreement: What are Your Final Obligations?
It's important to look at the purchase agreement and review your obligations. For instance, if you have agreed to paint a room or replace the dishwasher, such work must be completed before closing. Your REALTOR® can discuss your agreement and the steps that you need to take to complete the transaction.
What Happens During Closing?
Before closing, buyers typically have a final opportunity to walk through the property to ensure that its condition has not materially changed since the sale agreement was signed.
“Closing” is also known as "settlement" or "escrow." It is usually a brief office meeting to sign and complete the paperwork needed to finalize the sale transaction. One of the best parts of settlement is that there is very little that buyers and sellers need to do. All necessary papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the purchase agreement and allows all parties in the transaction to verify their interests.
Whatever the process, the outcome of the closing is the following:
- Property title is transferred from seller to buyer.
- The buyer receives the keys to the property.
- The seller receives payment for the home.
- From the amount credited to the seller, the closing agent subtracts money to pay existing mortgage and other transaction costs.
- Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices. Usually the closing agent also completes the paperwork needed to record the loan.
- Transfer taxes are paid and other claims settled, including closing costs, legal fees and adjustments.
The closing agent handles both the settlement papers and related documents.