If you’re just now getting familiar with real estate transactions, you might be a bit overwhelmed with the amount of legalese you’ve encountered. Legal contracts that transfer property from one party to another require a lot of work and careful checking during their creation so that no mistakes are made. One real estate term you’ll encounter when a property is sold is “settlement.”
Defining the real estate term “settlement”
Real estate settlement is when the property is legally transferred from the seller to the buyer. This is more commonly known as “closing” on the property. Settlement is the last stage in the sales process and requires the work of a settlement agent or closing attorney.
What the closing process entails
When a sale has reached the point of real estate settlement, it’s a busy time for the parties that are involved. Everyone from the buyer, seller, their respective agents, and settlement agents meet to review the numerous documents needed to legally transfer the property.
The buyer and seller will review all of the closing documents with their real estate agents and the settlement agent. These various forms will include the deed of trust, a promissory note, and disclosure agreements.
If a home inspection was ordered and performed, proof of this will be presented. The buyer will need to present proof that the home is legally insured. The buyer will also need to have a cashier’s check to cover the down payment and all of their portions of the closing costs.
If a lender is involved, they will have transferred the proceeds to the settlement agent. The funds are distributed between the seller’s lender (if applicable), the settlement agent’s office to cover their fees, the real estate agents and their brokers, and the seller.
After all the forms are signed and the funds distributed, the buyer receives the keys to their new property.
Do you need a real estate agent to help you close?
While it is not legally required to have an agent sell your property, most folks who are selling their home will use an agent to assist them. A selling agent will work hard to market the property, meet with interested parties and answer their questions about your home, and take care of all the necessary legal paperwork.
When you sell your property, there are many benefits to having a selling agent on your side. An experienced agent will know how the settlement process works and make it possible for you to close without any stress or hassles.
Though the agents are paid commissions out of the sale of the property, statistics show that using a selling agent will typically get you more money at closing than sellers who work on their own. The difference when a selling agent is used nets money above and beyond the commission paid to them, making it well worth using their services.
What can cause a delay in settlement?
Once an offer is accepted on a property, you will not be able to finalize the transaction immediately. In fact, it takes an average of 50 days from the date the offer is accepted until you and the seller can legally settle the property. It takes time for title companies to do their due diligence and research the history of the deed, making certain that no one else has any legal claim to the property and that there aren’t any liens that haven’t been disclosed.
The paperwork takes time to generate, and the financing companies will also need time to get things in order. And while these are all normal things to experience when approaching a settlement date, other unexpected items can cause the final settlement date to be delayed even further.
Low appraisals can cause substantial delays
The property will need to be appraised before the settlement date. An appraisal company will use the various data about the home and look at what other similar homes in the same area have been selling for recently. Hopefully, the appraised price is the same amount (or more) than the amount that you, as a buyer, have been approved to be financed for. If the appraisal comes in lower than the agreed-upon purchase price, it will create a problem that can delay the settlement.
A lender will not approve a loan for an amount higher than the appraisal price. If there is a gap between the appraised price and the sale price, the buyer will be forced to come up with the difference in cash. This must be done if the property is ever going to settle, and failure to do so will result in the deal falling through.
Funding snags will also mean putting off closing
If the buyer encounters any snags with securing financing, it will cause delays, too. Just because the buyer was preapproved by a lender doesn’t mean that the loan is guaranteed. There can be multiple reasons why a loan would be denied or delayed, but it’s most commonly because of a change in the buyer’s credit report. Meeting the additional requirements from the lender can take some time but must be completed if the property is going to settle.
Unmet contingencies mean that the property cannot settle
Sometimes, the buyer and/or the seller will have contingencies that need to be met before the property can settle. The buyer might have asked for certain improvements to be made before the sale is finalized, or the seller may have demanded more money to be placed in escrow.
No matter what the contingencies are or which party made them, they will need to be met before the property settles. If they are not, the settlement will likely not occur on the agreed-upon settlement date.
Your next moves
If you are buying or selling a home, you will need the help of a title company to lead the way on the real estate settlement. The years of expertise and professionalism of the Consumer’s Title Company make them a trusted name in this industry. Consider a consultation with them so that you will know your options before you make or accept an offer on any property.
