Close the deal

Step 3: Closing the deal!

What, Why, How

What remaining tasks do I need to take care of beyond getting my mortgage approved, and my appraisal through, and why are they so important?

You’ve come a long way toward owning a home. There’s a good chance you’ve been approved for your loan and seen your appraisal go through. At the very least, you are working toward those milestones. So what’s left to do?

Review the results of the inspection (and possibly renegotiate based on those results).
Inspections typically do not turn up major problems. Nevertheless, expensive repairs are sometimes needed. This is the reason you should always include an inspection contingency in your purchase offer. If the inspection turns up major problems, you have several options. Assuming you put the proper contingencies in place in your purchase offer, they are as follows:

• The seller can make any necessary repairs before you close.
• You and the seller can renegotiate a price in order to compensate for the cost of needed repairs, or you can decide on other concessions—having the seller pay closing costs, for example.
• You can walk away from the deal. (If you’ve included the appropriate contingencies in your purchase offer, you can get your earnest money back if you decide to walk away.)

Select an escrow company.
Escrow is a method of giving and receiving items, such as money, property, titles, deeds, etc., using an independent third party. In a real estate transaction, you, as a buyer, do not want to give the seller money until he or she has given you the deed, and the seller does not want to give you the deed until he or she has received your money. So, how do transactions get done? An escrow account is opened, and the escrow company is given instructions agreed upon by all parties involved, for example, the seller does not receive X until the buyer has put Y into the escrow account… Once all of the requirements have been met, each party receives what was agreed that they would receive (the home, the money for the home, etc.).

Close!
Once all terms have been met, your agent will instruct you on how to complete the closing. Depending on where you live, the closing is handled differently, but the general premise of the closing is the same.  You and the seller sign a number of papers (either sitting around the same table, or at different times) required to close the deal. You will need to come prepared with checks. If a lawyer was involved, you should bring a check for his or her services. You’ll also need checks for down payment, closing costs, and the actual mortgage. Note that for the down payment, you can’t use personal checks. Check with your agent to find out how you should provide this payment, e.g., through bank check. The actual mortgage money, because it is typically such a large amount, is usually either wired to the title company, or brought, in check form, to the closing by the lender.

Buy home insurance.
Your lender will require that you have insurance. What you want, and need, is casualty insurance (known alternately as homeowners insurance or fire insurance). Such a policy is important to a lender because he or she is typically named as an additionally insured party and will appreciate having their lien paid in full if your home burns down. You will too.

Condo association insurance often doesn’t cover personal property.
Note that in cases involving condominiums, the condo association typically handles insurance matters.  Still, you may choose to take out a separate policy to cover personal property, which is rarely accounted for under an association’s plan.

Get a “full replacement cost” policy
To save money, you ought to get a policy that provides for “full replacement cost” of your home. How does an insurance company determine the full replacement cost?  One thing it won’t consider is the purchase contract. This includes land. Nor will the insurance company arrive at any conclusions based on the amount of your mortgage. In order to determine what it would be obligated to replace in case of a total loss, your insurance company will probably want to see a copy of appraisal.

Choose the highest deductible you’re comfortable with.
The last thing to know about “full replacement cost” policies is that you’ll want to choose one with the highest deductible you are comfortable with. That’s because a policy with a $1,000 deductible is a lot cheaper than one with a deductible of $250.

Get an excess liability policy; $1,000,000 is a good idea.
On top of your regular policy, it’s wise to also invest in a $1,000,000 liability policy. This will protect you from claims against your home (if your roof collapsed, for example, and a visitor was injured). In these days of “generous” juries, you can never be too careful. And fortunately, these policies aren’t that expensive.

Don’t forget utilities!
A note about utilities: When you move in, you’re going to want utilities like electricity, gas, and water to be fully functioning.  Sellers typically tell utility providers the date they would like utilities discontinued under their name, and the more “thoughtful” among them will provide utility providers with your contact information.

Unfortunately, it’s equally likely that such a thing won’t even cross the seller’s mind.  So, it better cross yours instead! If utility companies actually turn off service, you can bet it will be a few days until they can get them turned on again. Worse yet, there may be additional costs for that service.  Make arrangements with the seller, however, and you’ll have no worries.

How can I avoid problems when selecting an escrow company, closing, and getting home insurance?

How to avoid problems with an escrow company:

• The listing agent will oftentimes choose the escrow company, but you may want to do this yourself instead. Here’s why: escrow companies that are owned or controlled by the listing agent’s real estate company aren’t always as “independent” as they should be. Not wanting to bite the hands that feeds them, they tend favor the seller’s side of the transaction. They also tend to add extra fees that may seem unreasonable (perhaps due to the lack of competitive pressures). It’s better to specify your own escrow company.
• Regardless of whether the escrow company is of your choosing or the listing agent’s, beware of the various “garbage” fees that certain escrow agents have learned to add into the deal to increase their profitability. For example, $100 charges for printing documents for the closing, etc. Be sure to ask the escrow company for a list of all fees you will be expected to pay, about fees you don’t understand, and ways to reduce these fees. If the escrow company tries to tack additional charges on later on, hold them to their original list.

How to avoid problems at the closing:

• Before you close, it’s critical to do a final walkthrough to check that all repairs agreed upon as a result of the inspection were actually done. It’s not enough to take someone’s word that repairs were made. Do a final walkthrough (take your inspector with you) to ensure that everything is in the state that you expect it to be in.
• Talk with your real estate agent to be sure that you will have the money you need, in the right form, at closing. You’ll need checks for your lawyer, a down payment, closing costs and the mortgage itself. Be sure that you get the money in a form that is acceptable. Oftentimes, personal checks are often not accepted and you may be required to produce a bank check instead.
• Make sure your agent or lawyer is at the closing to explain to you the purpose of each form you are signing. There are a lot of papers to sign and sometimes it’s easy to just stop reading and keep signing, which is never a good idea. Make sure you have an experienced professional whom you trust at your side to guide you through the process.

How to avoid problems with home insurance:

• Don’t assume that your condo insurance covers your personal property – it usually doesn’t. You’ll need to get a policy for your personal property on your own. Check with your condo association for information on anything else the association’s insurance doesn’t cover.
• When things go wrong with homes, e.g., fires, floods, etc., repairs can be very expensive. Cover yourself adequately so that you’re not laying awake at night running “what if” disaster scenarios through your head. Get a “full replacement cost” policy, and make sure you understand what it covers, and what it doesn’t (for example, your land).
• Choose the highest deductible you’re comfortable with; this is usually a cheaper policy.
• Also, be sure to get a $1,000,000 excess liability policy – you don’t want to have to pay hospital bills for someone who slipped on a loose board and fell down your stairs and broke his leg. And this type of insurance is not that expensive.

Don’t forget utilities!

• Utilities might not seem like a big deal as you’re working through all of the details at closing, but they will when you’ve just moved in and can’t even turn on a light to unpack.  
• Work out with the owner how to transfer service so there is no gap in service. Not only is having your utilities off when you move in very inconvenient, it also costs money (and takes time) to get them reinstalled. It’s not the seller’s responsibility to make sure there is continuous service – so take it upon yourself to make sure there is a smooth transition.