As a real estate broker, getting a signed sales contract in hand is one of the most exciting parts of the buy/sell process. A lot of time and effort goes into bringing a buyer and seller together to agree on the sale terms for a piece of property. But, getting the contract signed only signals the beginning of the next phase of the process. Brokers should be well informed of the steps in the closing process to be able to advise of and explain the process to their clients. Being able to set expectations in advance of closing will help reduce the stress level of all involved and smooth out the closing process.
The following items are a few key pointers to keep in mind and be ready to discuss with clients as the closing progresses:
- Communications – Brokers should remain in regular communication with not only the closing office, but also their counterpart broker on the other side of the transaction. While this may not necessarily mean daily phone calls and/or emails, at least a regular check-in is recommended.
- Contracts – Brokers should have read and understood what the sales contract says and the terms to which their respective clients agreed. Important points which frequently come up are payment of excise taxes, payment of HOA fees and transfer charges, payment of closing costs, and deadlines for due diligence and closing. Brokers should be familiar with the terms of the “standard” form contract for their states of operation, and if the transaction uses a non-standard contract (e.g, a builder sale or REO sale), the broker should take the time to read that contract and encourage the buyer to do the same.
- Financing – Brokers should understand how mortgage financing works generally, and know and understand what type of financing will be involved in each transaction. Buyers’ brokers should know what type of loan their clients are getting, the interest rate, loan amount, and other features of the loan.
- Closing Disclosures and HUD Statements – Brokers should know who is required to produce the settlement statement for each transaction, know how to read and explain the settlement statement, and know where to find information on the statement. Since the implementation of the TRID overhaul in 2015, most mortgage lenders, and not the settlement agents, produce and dispatch the Closing Disclosure for the buyers’ portion of the transaction. Seller CDs are prepared by the settlement agents, but are often not available until the day of closing. TRID only requires that seller CDs be delivered by or before the time of consummation of the transaction. And remember, broker commissions are only shown on the seller’s CD now, and not the buyer’s CD.
- Funding Requirements – Brokers should know whether or not the buyers’ lenders have funding requirements that must be met before the settlement agent is authorized to disburse money. Some lenders require settlement agents to forward copies of some or all of the signed loan documents for review before money can disbursed (and, subsequently, documents can be recorded). If the lender requires funding authorization, the parties to the transaction should be prepared to wait for anywhere from 1 to 4 hours, or more, before the settlement agent is allowed to complete the transaction.
- Post-Closing Plans – Brokers should discuss buyers’ post-closing move-in plans and prepare them to have a “Plan-B” in the event there is a closing delay. Attending closing with movers or utility technicians scheduled to arrive at the property shortly after the end of the planned closing time is ill-advised. Closings are routinely delayed for unforeseen issues, and the quickest way to raise stress levels is to have parties already racing to meet another outside deadline. Flexibility on after closing scheduling is a must.
- Recording – Brokers should know and understand the recording process, and how that process may affect their transactions. Many settlement agents and counties use electronic recording (or “E-recording”). Brokers should understand how E-recording works. Many mistakenly assume that E-recording equates to instantaneous recording of documents. It does not. If E-recording is not available, brokers should understand how recording is completed and approximate times required for completion.
- Disbursement – Brokers should be prepared to set their clients’ expectations for disbursement of funds. North Carolina mandates that deeds and mortgages be recorded before any funds are disbursed. South Carolina permits (but does not require) funds to be disbursed at the closing table if certain criteria is met. Some settlement agents have policies that do not permit disbursement of funds at the settlement table, and disburse funds upon recording of deeds and mortgages. Such policies are typically in place to combat the rampant fraud that is becoming more prevalent with real estate transactions. Brokers are encouraged to contact settlement agents in advance of closing to inquire about fund and commission disbursement policies, as well as fraud prevention procedures. Remember, fraud prevention procedures are used to protect the parties involved and not to unnecessarily complicate the process.
The above items are merely a few pointers brokers can use to help de-stress a stressful process and smooth out closings. A good broker knows all aspects of his or her business well, and will shine in front of clients when able to answer questions about the process and deal with concerns before they become real problems. If you are waiting to be educated at the closing table, you have waited too long. A qualified attorney at Black, Slaughter & Black can help you understand the closing process and help you be a star for your client.