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Closing (in real estate)

DEFINITION

Final step of a real property transaction prior to title being transferred from the seller to the buyer.

EXPLANATION

Closing and possession: Closing and possession refer to the date in which the home will be transferred over. Real estate must be vacant when the property is sold and transferred. If the property is a rental property, the seller must deal with tenants before the completion of the sale to ensure home is ready to be occupied by new owner.

Keys, electronic entry devices, security pass codes and other home security related devices should be provided to buyer at time of purchase unless otherwise noted.

Lenders cannot charge clients without first providing them with all the closing costs. Law requires lenders to produce these documents to all their mortgage borrowers. Additionally, it is unlawful for the creditor to charge the borrower for a uniform settlement statement. The uniform settlement statement must be provided to the borrower before the closing date. The settlement statement provides a breakdown of all charges in the transaction. This includes a list of all associated costs for both the borrower and seller.

Closing Costs

Closing costs include any expenses that exceed the purchase price of the property. Although fees and costs of buying and selling differ based on where the property is bought and sold, there are certain costs that will always remain. Typical closing costs include escrow and title fees, paying off old loans, including prepayment and prorated loans, home warranties, prorated property taxes, insurance, and other specific fees for each transaction.

Closing

Once all escrow steps have been performed by the escrow officer and his or her respective company, the escrow officer will order for the closing of the transaction. Closing escrow means funds will be transferred to the proper parties and the title of property will be exchanged. Once this occurs the transaction will be closed. Upon closing, the escrow officer will send closing statements labeling the close of the sale to the buyer and seller. Once the transaction is fully executed, the transaction will be recorded.

The escrow agent will send a settlement statement to the buyer and seller. The settlement statement includes the costs of the transaction for both the buyer and seller. The settlement statement will be given immediately following the opening of escrow, before signing loan documents and right before the close of escrow. Closing statements are given multiple times to indicate the changes in calculations dependent on the date of close and if any new charges were added.Once all the above steps have been performed by the escrow officer and his or her respective company, the escrow officer will order for the closing of the transaction. Closing escrow means funds will be transferred to the proper parties and the title of property will be exchanged. Once this occurs the transaction will be closed. Upon closing, the escrow officer will send closing statements labeling the close of the sale to the buyer and seller. Once the transaction is fully executed, the transaction will be recorded.Once all the above steps have been performed by the escrow officer and his or her respective company, the escrow officer will order for the closing of the transaction. Closing escrow means funds will be transferred to the proper parties and the title of property will be exchanged. Once this occurs the transaction will be closed. Upon closing, the escrow officer will send closing statements labeling the close of the sale to the buyer and seller. Once the transaction is fully executed, the transaction will be recorded.

Closing Statement

A closing statement is an escrow accounting form used to itemize all expenses and credits for the subject property being bought and sold. Closing costs include closing costs, financial terms, deposited funds, credits, debits, payments to vendors, and payoffs for loans and liens. The closing statement will indicate, after calculating all costs and expenses, how much the buyer is required to bring into escrow to execute the transaction. A final HUD-1 statement of closing costs and a good-faith estimate are required for residential real estate of one to four units.

Closing Statements & Costs

An escrow closing statement states all the fees and costs necessary to closing escrow.

Closing costs are the costs that either a buyer or seller are required to pay in addition to a property’s purchase price. The costs associated with closing a real estate transaction vary based on the terms of a transaction, purchase price, location, and/or local customs. All fees and costs can be found in the escrow closing statement.

Typical fees include:

Title fees

Recording fees

Agent commissions

Property taxes

Loan fees

Escrow fees

Escrow Fees

Escrow companies have the right to set the price for services provided. Escrow fees are dependent on the complexity of a transaction, the time and effort spent, and the costs incurred by the escrow company. Therefore, there are no standard escrow charges or fees and there is no formal measure dictating them.

Additional escrow fees may be incurred when agents must work with lenders on the transaction. Such lenders may include a seller’s lender, junior lien agents, and the lender for a buyer’s financing.

Both principals should agree on how much they are willing to pay in escrow fees before they look for an escrow agent. As it is against the law for a real estate agent/broker to require the use of a specific escrow company, principals have the right to research the most suitable escrow for their needs.

In California, it is standard procedure for the buyer and the seller to split the costs of escrow. However, they do have the ability to negotiate how much each principal is responsible to pay. In some real estate transactions, for example, a seller may have to undergo repairs as a contingency of the purchase. Thus, the seller may request that the buyer cover all escrow fees.

In the case of a refinance, a lender will almost always require the borrower to pay the escrow fees.

It is illegal for an escrow to discount one principal’s fee in exchange for a referral or the promise of future business. Escrow must provide each principal with the same discounts and savings opportunities; however, escrow can split escrow fees differently for principals based on the principal’s negotiations with one another.

Prorating

Prorating is the process of distributing property expenses amongst principals at the close of escrow. Expenses that are typically prorated include: property taxes, deposits, HOA fees, rental income, interest, and insurance. Individual prorations can be negotiated between principals.

The purpose of proration is to make expenses more equitable between principals in accordance with the buyer and seller’s respective periods of ownership. For example, if a transaction closes in the middle of the month, escrow may prorate the costs of the property taxes between the buyer and seller.

Proration is based on a 360 day calendar year and a 30-day month.

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