Navigating the Home Selling Process, Explained
Selling your home can be a complex, or, easy process. Many sellers have only bought and sold one or two homes before, and when it comes time to sell, they don’t always understand the process of closing.
Many new investors don’t understand this either, so they may need to learn these concepts too.
Many of the sellers we meet are unfamiliar with the way the closing works, so below is an easy-to-read article for helping someone understand what is about to happen.
If you are familiar beforehand with what to expect, it can make this process much easier as it happens. And with real estate overall, there are so many things that change over time it can be hard to get a grasp of the whole thing.
I break down the closing process, step by step to provide some clarity on the timeline of what you can anticipate during this phase of selling your home.
- The Offer and Acceptance of Contract.
The whole process is all started when you either reach out to someone to sell, and it can be from contacting a real estate agent, or a cash buyer like us.
Once you have an offer you are willing to accept, in writing, from a potential buyer, this begins the closing process.
Once both parties sign agreed upon the terms of a contract offer, the date of the last person signing is when the timeline begins.
The contract should outline the details of the transaction, which will include the purchase price, the date of expected closing and any contingencies involved, which will mean who pays for what.
(Note) contracts can be changed, or have addendums, so the new terms agreed upon, become part of the contract, once they are approved by both parties and signed.
This may or may not change the closing date.
This also will begin the process for the buyer to have the home inspected for unseen or unknown deficiencies, provided the contract allows for this.
Think of an inspection report as a guide to what problems the home could have, and the overall condition.
- Escrow and Earnest Money.
Once the contract has been signed, the buyer will typically deposit a designated amount of money into either an attorney’s or title company’s escrow account. This not only is a gesture of good faith, but it shows the willingness of the buyer to fulfil the contract.
As a seller, don’t get caught up in the details of why the buyer didn’t give you the money personally. Escrow keeps both of you at an arm’s length transaction. It is also good practice, so either party will be protected somewhat in the case of not performing.
The escrow is held also by a neutral third party that holds funds until the closing is finalized, and as a seller this earnest money will be given to you at the closing.
In some areas, this is also known as a good faith deposit, which means the same thing, that the buyer had committed these funds as their commitment to proceeding to the closing.
The escrow stage of the contract continues until closing.
- Inspection and Appraisal.
Many buyers will conduct a home inspection, or contract with a home inspection company to do this, to make sure the home is in satisfactory condition.
If the buyer is using a mortgage to fund the loan, an inspection and an appraisal of the home’s value will be determined. Most lenders will make these two processes mandatory before they fund the loan.
Cash buyers generally don’t need the appraisal if they know what they are doing, although some may ask for one.
The appraisal is to determine the homes’ fair market value.
Either of these two processes may have discrepancies or have items that need attention paid to them.
If a home’s air conditioning is old and may not be serviceable much longer it could be a point of contention to either party.
Roofs are also what can make or break a deal.
Any issues found with an inspection may also lead to negotiations or required repairs.
If the value of the home is exceedingly low, the closing price may need to be adjusted, especially if the buyer is using a traditional lender.
Cash buyers usually already know the value of your home’s fair market value before they make you an offer.
- Title Insurance and Title Search.
The title search is performed to verify that the title to the property is clear of any liens or legal issues.
Many times, a buyer will request a clear and marketable title to the property before they close.
This ensures the buyer that there are no problems with the title that will need to be cleared up, which could delay the closing, but it also gives the buyer the assurance that they can re-sell this property later without issue.
The title insurance is obtained to protect both parties from any unforeseen claims or disputes related to the property’s ownership through the years.
Both of these, title insurance and title search, have nothing to do with homeowners insurance.
I added this next part for you to know if you are under contract with a buyer that will need a loan. If they are financing the home, they will need this time to be approved by their lender.
Cash buyers don’t usually need to take this step, so closing can happen sooner as they don’t go through this process. If you need to sell, contact us.
- Loan Approval for the Buyer.
Buyers don’t like this step in the process any more than you will, as each one has to wait until the traditional lender feels comfortable funding the loan.
This can slow the whole process of selling down in many ways. Some of the problems arise when buyers don’t meet the requirements for a loan that they applied for.
This is also one of the reasons that many agents will not show a home to potential buyers without them already having been pre-approved for a loan, and how much they qualify to borrow.
This can make the process faster, but lenders don’t always cooperate at the speed you need.
Even the government backed home loans like the V.A. and FHA loans can be a maze of paperwork for the buyer, which frustrates everyone involved.
Remember above when I mentioned required repairs, be prepared to either do them, or have them done if these types of loans are being used for purchase.
Not that you must do most of them, although it could force a cancellation of this sale. It may just come down to reducing the selling price if needed without the repairs being done.
- Finalizing the Closing Costs.
Closing costs are where all the funds get laid out in an easy-to-read document. Each party to the transaction pays their scheduled amounts line by line.
The closing costs will include fees from each service to the transaction, and who pays them.
These can range from unpaid taxes, if any, to the cost of the lien search, title search, title insurance, attorney fees, plus the fees the title company charges to handle the whole transaction.
Plus, if there is an agent involved by either party, their commission is paid out at closing.
Once all of the fees have been added to the document called a closing statement, and balanced out for both the buyer and the seller, each one will receive what is called a Closing Disclosure.
This is all of the costs associated with the closing, who pays for what, and it will need to be approved by both the buyer and seller. It is usually delivered to each, prior to the closing.
Some contracts will even have a clause that states when this needs to be done by, before closing.
- The Closing.
The closing itself is usually done at a title company or attorneys office where everyone signs their appropriate documents.
All documents should be reviewed and approved as this is the point where the home changes hands.
Almost all of the documents that will be of legal record will need to have been notarized, by a notary, which is usually on staff.
There are mobile closing companies that will come to you in many states, so you wont even need to go to the closing, but this needs to be known beforehand.
People have signed their paperwork at a Starbucks, and then the Notary either hand delivers or overnight mails the paperwork to where it needs to be sent.
Not everyone will need to be present when the next couple of things happen, although they are all done simultaneously when the closing happens.
Once all of the documents are signed and the buyers’ funds are at the title company to be dispersed to the seller, the title has changed hands, and then the documents will be recorded.
Understanding the closing process can help you navigate why all of the paperwork is done, plus you will be able to close with confidence.
Being aware of each step you can actively participate in the process.
You will also be able to anticipate potential challenges during this process.
Cash buyers will usually close in about 30 days, and when mortgage loans are being used it can take as long as 45 days on average.
Your timeline must be considered before you even sign a contract with your buyer.
Another benefit of selling to a cash buyer is that there can be much more privacy for you than all of the information gathered about you and the home by traditional lenders.