May 17, 2023
Before closing on a house, you need to get to the settlement table. You’re near the end of the process of selling your home, but don’t breathe a sigh of relief just yet. While it’s certainly true that you can let go of the anxiety of needing to show your home at any moment, you still need to cooperate with your buyer, the buyer’s agent, and the commitments made in the contract.
As a seller, here’s what you need to know about the settlement process.
What contingencies impact sellers before closing on a house
While the burden is on the buyer to finalize financing for the home purchase and to obtain homeowners insurance, some contract contingencies will impact you, too, especially if you’re living in the home.
Before closing on a house, most transactions include a home inspection, so you’ll need to make your home available to the inspector and then negotiate with the buyers about anything the inspection turns up according to the terms of your contract.
Aside from the home inspection, some contracts (and some lenders) call for a termite inspection and a radon gas inspection. In those cases, you or your listing agent or the buyer’s agent will need to make the home available for inspection.
Another important step prior to closing on a house is the appraisal. If the appraisal comes in higher than the sales price, then the buyers can relax in the satisfaction they’ve purchased a home for less than its market value. Once the contract has been signed, a seller can’t renegotiate the price higher.
But if the appraisal comes in lower than the sales price, then the buyer’s lender will limit the loan amount to that lower value. The buyer may have to come up with additional cash to cover the financing gap or may ask you to renegotiate the contract. Your agent can advise you about the best way to handle this situation, but you and the buyer are also bound by the contract terms.
Before you go to settlement, you should go over the contract with your agent and ensure you’re ready to fulfill any obligations you’ve made in terms of what items will be conveyed to the buyer as well as any repairs or improvements you promised to make.
Negotiating a settlement date
Buyers and sellers typically negotiate a settlement date that is mutually agreeable. If you have sold your home and are not yet ready to move into your next residence, you can sometimes negotiate a “rent-back” with the buyer that allows you to stay in the home after the settlement by paying rent to the buyer.
In general, lenders restrict rent-back to a maximum of 60 days. Check with your buyer and your agent if you need to rent back for longer than two months.
Alternatively, some sellers allow the buyers to move in before settlement. In either case, it’s crucial to have a written agreement about who is responsible if something happens to the house or its contents during the transition period.
The decision about who provides settlement (also known as closing or escrow) services varies from one market to another. In many places, the buyer chooses the settlement company, but in others the seller chooses. When closing on a house, the buyer will provide funds to buy your home and the settlement agent will review the sales agreement to determine what payments you’ll receive. The title to the property is transferred to the buyers and arrangements are made to record that title transfer with the appropriate local records office.
At a typical closing, adjustments are made to the final amounts owed by the buyer and you as the seller. For example, if you’ve been paying your property taxes through an escrow account, you may be credited extra for prepaid taxes or you may receive less money at settlement if the property taxes haven’t been paid properly.
Once the settlement papers are signed and the house keys are transferred, you’re free to move onto your next home.