If you have come this far into our seller's guide, it's almost time for a toast and some well-deserved congratulations. You have accepted a great offer for your home, carried out all the necessary appraisals and inspections, and you can see the end of the line — welcome to the closing process!
The close of escrow process is the last stage separating your earnings from your account and your keys from the buyer's hands, so while it may be tempting to rush into it without prior research, knowing what to expect will help you deal with all closing costs and closing procedures smoothly. What will be expected of you during this time and what, exactly, will be the role of your real estate agent through all of this?
Let us walk you through the entire timeline of closing an escrow and answer some of the most frequently asked questions on this often-overlooked procedure!
What does escrow mean and how does it work?
Let's start with the very basics and take a look at the meaning of escrow first. In the financial world, escrow is a legal arrangement as well as a type of financial instrument, meaning a substantial asset that can be traded. In the case of real estate transactions, the asset in question is the required funds for purchasing a home, and it is held by an independent third party for an agreed period of time while the other two parties (in our case, buyer and seller) are fulfilling their respective obligations. Once the transaction is completed, the receiving party will finally get their property, while the seller will walk out of the deal with their profits.
At a glance, the escrow process is quite simple, but it does get more complicated when we take into account different variables that might stretch the closing date further down your timeline. For example, your buyer might be struggling to get their mortgage loan approved, or the final inspection of your property might've brought more severe issues to light, needing more time to carry out repairs. This means that your close of escrow and closing date might not fall on the same date!
What's the difference between close of escrow and closing date?
When you're first talking to your agent about your timeline for completing the sale, you're likely going to identify two key dates: 1, your preferred closing day, and 2, the ideal close of escrow. The latter is just one part of the closing process, and it tends to be a lot more flexible. It only refers to the time when both the buyer and the seller have fulfilled their part of the agreement, such as passing appraisal and inspection checks, putting down a deposit, and acquiring pre-approval loan documents. This may or may not happen on the actual agreed date, as you might exchange all the necessary documents way ahead of the title exchange, automatically closing the escrow.
Generally speaking, you can expect this entire process to last between 30 and 50 days. You should be communicating with your buyer and agent throughout this period to ensure all key deadlines are met and that you have a clear idea of when the purchase agreement can be fulfilled!
Your close of escrow checklist
Once you have a rough idea of the closing timeline, it's time to get all your paperwork in check and proceed with the closing! Here's a handy checklist of what both you and your buyer will be expected to do during this time, and a few tips on how to make this process faster and smoother.
Let the buyer deposit in the escrow account
Both parties are going to need an escrow account to hold the buyer's funds until the purchase agreement is fulfilled, so the first step after finding an escrow company to work with will be to wait for your buyer to deposit the assets in the newly-opened account. A dedicated escrow agent will collect your buyer's earnest money deposit and act as the neutral third party until closing day, when the money is finally released and paid to your account. This process can be overseen by both an escrow company or an attorney identified as the escrow agent, depending on where you're based.
Obtain a title insurance
Now, with the help of your agent, you're going to dive into some paperwork yourself by ordering a title search, which is essentially a review of all public records available confirming that you are the legal owner of the property you're selling. It might seem like an unnecessary step at first, but any unknown claims made against your property could make the deal fall through or considerably delay closing!
Obtaining title insurance beforehand can make a huge difference and protect you from any unseen claims or judgments, and when it comes to your buyer and their lender, title insurance is required for the sale to go forward. You can talk to your real estate agents about the pros and cons of obtaining a different type of title insurance as a seller, also known as owner's title insurance, to decrease the chances of financial loss for both parties involved.
Complete the lender's appraisal and inspections
At this point, you might have already completed all necessary appraisals and inspections prior to working with a title company, or you might still be waiting for one last pest inspection. Whatever the case might be, you have to make sure you have cleared all contingencies in the sale contract before going ahead with the closing!
While an inspection will typically examine the safety and functionality of the home, including electrical faults, water damage, and even minor issues like leaky faucets and faulty windows, the lender's appraisal will determine the market value of your home. This is why the latter procedure is so crucial for the closing to go ahead as expected: If the appraised value of your property is lower than the loan amount, it might halt the selling process altogether and force you to go back to negotiating your price! If all contingencies have been met, both parties will move onto the review stage, but if your inspection and appraisal fail to satisfy the agreement, this might be where the journey ends.
Review all closing documents
Next, your buyer and their agent will review the documents you have provided, including all seller's disclosures and all title documentation. At the same time, you will also be reviewing the buyer's documentation with your closing agent, such as mortgage loan approval documents, the report from your appraisal, and inspection reports. Review all documents carefully on your end and make sure to send an accurate HUD-1 form to your buyer at least one day before closing, detailing all closing costs for the sale.
The final walk-through inspection
More of a formality than anything else, the final inspection takes place the day before, or in some cases, even on the day of the closing. The buyer and their agent will visit the property to verify that all is in working order, that all required repairs have been made, that all rooms are clean and free of any new damage, and that there are no extra items left behind. If the buyer discovers anything problematic during this final visit, you’ll need to address it promptly or risk the closing being delayed, sometimes even dramatically so.
Cancel all home services and utilities
Don't forget to cancel all utilities in your name before you give your keys and title to a new owner! While canceling all home services before you have an official closing date is strongly discouraged, you should try to contact your home's utility providers at least 48 hours before the change of owners, providing them with your new address. If you're worried you might forget something, you can count on us to provide a list of useful numbers for the termination of home services and utilities after the closing occurs.
Finalize the sale and close
With all documents in order, the time has finally come to finalize the sale, exchange keys, and receive your check! The very end of your close of escrow will usually take place in the office of your escrow officer, and you won't need to bring much with you to make the deal official. A government-issued photo ID, the keys to the property, and any outstanding documents your agent instructs you to bring, such as proof of completed repairs, will suffice.
The closing agent will provide all parties involved with a settlement statement, which summarizes and details all the financial transactions enacted in the process. The buyer will first sign this statement, then you, then finally the closing agent will sign as well to certify the accuracy of the figures. If you are unable to attend the scheduled closing, then you'll be happy to know that arrangements can be made depending on the circumstances and the notice you give your agents!
Once the paperwork is signed, you will receive confirmation that the escrow funds are being transferred, and as the seller, you will also get a settlement statement breaking down the purchase price, the closing costs incurred, and your net proceeds. Needless to say, the last step is the best step: Your buyer will finally take possession of the property and you are going to get paid! The possession process will take place on the same day as the closing of escrow.
In terms of how you're going to receive your funds from the transaction, you can choose to either have them wired electronically to an account or get a check issued to you at the time of closing.
Be prepared for unexpected glitches!
Many things can go wrong during these last few stages of closing, even if both you and your buyer have done everything right from the start. But if something at the property gets damaged right before the final walk-through or the buyer’s loan ends up not pulling through in time for the close of escrow, there is no need to worry when you're working with us!
We have encountered all these problems before and we know how to handle them efficiently and in a stress-free manner, so you don't have to worry about the sale falling through. We are ready to assist you should an unforeseen glitch pop up, even on the very last day of closing — get in touch today to get started and close worry-free!