The Closing Process Explained
Sales contract to closing table takes 30-45 days. Here are 8 key considerations.
Contingencies are conditions that are included with an offer that must be fulfilled before the deal is closed.
For example, a buyer can submit an offer contingent on the sale of his/her other home. This allows the buyer to back out of the deal if their primary home doesn't sell.
The most common contingency is the 3rd party financing contingency, which makes the contract subject to buyer qualifying for a bank loan to purchase the home. If the buyer is not able to secure a loan to buy the home, they can back out of the purchase and reclaim their earnest money.
2. Option period money
An option period is a specified time frame in a real estate contract which allows a buyer to terminate the contract for any reason. It creates the right to terminate within the specified number of days for a specified price, usually $200 for 7-10 days. This is payable to the seller and must be delivered to the seller within 3 days of signing a contract.
3. Earnest money
1-3 days after the seller accepts an offer on a home, the buyer agent will coordinate delivery the earnest money to the title company, which will hold it in escrow during the transaction. Earnest money is typically 1%–3% of the sale price of the home and is applied towards closing. If the buyer backs out of the deal for anything not covered by a contingency, they forfeit their earnest money.
4. Home inspection
Next, the buyer will schedule a home inspection with a state certified inspector. An inspector will give the buyer an accurate picture of the home's condition and identify any major issues with the home.
An inspection generally takes a 1-2 hours and within 1 business day the buyer will receive a report outlining any issues discovered during the inspection. If they have an inspection contingency and discover a major issue with the home, the buyer can back out of the deal at this point.
What does a home inspection include and how much does it cost?
Inspections cost $300-$600. The inspector looks “under the hood” of your home and provides the findings in a detailed inspection report with photos that covers the following: foundation, structure, interior, exterior, roofing, electrical, heating, cooling, venting, insulation, plumbing and tests on all applicable systems.
Why do I need a home inspection?
It’s not required, but a home inspection may identify the need for major repairs and help you negotiate before you make one of the biggest investments of your life. 97% of customers believe that the home inspection was a good value for the price they paid.
Should I be present for the inspection?
You’re more than welcome to join the tour, but it’s not required. We’ll coordinate access to the property and all findings will be presented in the written report of the home that is sent to you the day of the inspection.
5. Home appraisal
Unless a homebuyer is paying all cash, they will get a mortgage and a mortgage lender will order a home appraisal. If the home does not appraise (meaning the bank doesn’t think it’s worth what the buyer is offering), the buyer will have to either bring additional cash to closing or attempt to renegotiate the sales with the seller.
6. Title insurance
Title insurance protects against losses in the event that a problem arises with the title after the home is purchased. Think Carfax for homes and for most purchases, there are two parties who require title insurance — the lender and the homebuyer.
7. Final walk-through
One of the very last steps is the final walk-through, which should confirm three things:
- That the house is in the same condition as when the offer was accepted
- That all necessary repairs have been completed
- That everything that was included as part of the sale is still in the home
8. Closing day
The title company will work with you to schedule a time for you to go into their office and sign the closing documents. If you're not in town or prefer, you may choose to have a mobile notary come to you for closing. On the close date, the transaction is recorded on the public record and the escrow agent distributes funds.