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”
What the closing process entails
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?
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?
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
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
Unmet contingencies mean that the property cannot settle
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.