Wednesday, October 5, 2011

Step #8 - Onto Closing!

As you work with your broker / banker to get the final "clear to close", I would advise that you keep an open channel of communication with the seller's team.  They will be quite anxious themselves - it has probably been weeks since you signed the contract and there isn't a lot of information flowing back and forth.  I think it helps all parties to say "just fulfilling the final conditions; we are still on target for our scheduled closing date".  Surprises near closing are never good.

On or About
The closing date you've put in the contract of sale is referred to as an "on or about" date.  That means if you can close early, great.  If not, neither party should be surprised..  There will likely be language in the contract that will put some brackets around that date giving both sides room if delays occur.  Unless you have penalties written into the contract, there isn't much that can be done to force someone to close.

In our case, while we were ready to close on time (and ahead of our lease expiration), the seller wasn't ready.  This can happen for a host of reasons - is the seller closing on a purchase of his/her own new home?  Are they packing up and traveling far away?  Or, perhaps the seller doesn't want to begin packing the house up until he/she knows there is a deal in hand.

If you have some sort of inflexible timeline, such as a rental lease expiring, my first advice is to schedule a closing well in advance.  You'd love to have your lease end and move into your new home the same day, but as in our case, how big of a challenge will it be if you have to move out of your apartment but you and your belongings have no where to go?  What if the seller says he/she needs an additional two weeks?  You could make all sorts of empty threats about walking away, but #1) you won't and #2) depending on your contract, you might lose your deposit if you do so.

In that situation, you'd be livid about the injustice of it all (oh, I know), but there isn't anything you can do about it.  When drafting your contract of sale, you should discuss with the lawyer the idea of putting penalties in place if the closing is delayed outside of the brackets.  More often though, those delays will be the buyer's fault, so be careful.

Closing will require the presence of the buyer, seller, and their respective teams (agent, banker, lawyer).  This can also lead to slight delays, but everyone at this point wants to close the deal and get paid.  A few days before closing, you'll get your Closing Statement - this will be the final tally of closing expenses.  You'll need to get a certified check in this amount.  Take a good look over these expenses and have every item explained to you.  Most of these expenses should be the same as what you've seen on your Good Faith Estimates.

One area that can be a surprise is taxes.  You are required to reimburse the seller for the taxes that they've paid that cover the period beyond closing.  So if the seller paid a tax bill in June that covers July through December, and you close at the end of July, you'll have to reimburse the seller for August through December.  The amount you have to reimburse the seller depends on how many times per year your municipality collects taxes.

Once you've scheduled closing, I would suggest telling your cable / internet company of your planned move.  You can always cancel your request if closing gets pushed back or called off.  In our case, we waited until just before closing and then found we'd be without TV and internet for almost a month!

What Happens the Day of Closing?
On the day of closing, you'll first do a final walk-through of the house.  This is your last chance to spot anything amiss.  If the seller (accidentally or not) took an appliance that was part of the contract, and you don't notice for a few days, you are out of luck.  You'll want to look for the key items in the contract such as washers, dryers, and water heaters, and anything that was specifically written into the contract as an inclusion.  You'll want to check that all the appliances are in working order too.  Check the house to look for any damage caused when the seller moved out, and look for any damage that was maybe hidden by a piece of furniture or decoration.

After you have completed the final walk-through, you'll head to your lawyers office to sign the documentation.  It turns out banks won't lend you hundreds of thousands of dollars without asking you to sign an enormous stack of paper.  Depending on the type of mortgage you've applied for, document signing can take several hours.

At closing, there can be final negotiation of any outstanding items.  Sitting down and discussing things face to face can help bridge any gaps, although there is always a chance that the opposite could happen.  The others in attendance though are very close to getting paid and will likely help to push the two sides together.  In some cases, Realtors have agreed to reduce their commission if there is a small dollar difference on an issue that seems irreconcilable. 

Once the paperwork is signed, the seller should hand you the keys to the house.  Make sure to have the seller explain which key goes to which lock.

At this point, the house is yours!  You've just purchased a house and locked yourself into a mountain of debt.

1 comment:

  1. Very nice buyer's guide. I like your last statement "mountain of debt"!