What is the Process of Closing on a Real Estate Deal?

As always in business the more you continue to grow the more you need to review the basics, since a turn of events or things you didn't know before can now be applied from the bottom up in different ways. 

It's worth mentioning a real estate deal requires many detailed efforts such as the title, proper documentation on the property in order to ensure a successful close. As defined, closing pertains to the property owner signing the necessary documents signifying that the property is now yours.

What steps do you follow to close real estate deals?

Start an escrow account

An escrow refers to an account managed by a third party on behalf of the two principal parties in the transaction. Most sales that involve real estate properties undergo processes that last for a number of weeks. The best way to reduce the risk of either party of getting ripped off, find a neutral third party that will manage the financial resources and documents related to the transaction until everything about the transaction gets settled.

Once all of the processes are done, money and documents are transferred to the custody of the escrow account. Then it will be moved to the seller, the buyer then guaranteeing a secure transaction.

Title search and insurance

A title search and insurance provider gives buyers a peace of mind as it’s a legal safeguard for their property. Nobody else can attempt to get the property and claim it for their own.

It does a careful study of public records that determines and assures the legal ownership of a property. It also shows if there are any claims on the property so it can be resolved before the purchase.

On the other hand, the title insurance prevents financial loss for the holder that comes from defects to the title of the property. It protects the real estate owners and lending companies from loss or damage that comes from liens, encumbrances, or defects within the title or actual ownership of a property.

Find a lawyer

Dealing with legal matters is best done if you find a lawyer to give you legal advice on what’s the best action to do especially in closing documents. There are terms and jargon that may seem too hard and complicated to understand regardless if you're knowledgeable. 

With the right fee, you’ll find a real estate lawyer who will give you their thoughts on any legal matter or question that you raise. You can always consult them about the benefits of owning real estate properties and even with problems that arise with in the paperwork. In other areas, the presence of a real estate lawyer is necessary for every closing made.

A pre-approved mortgage

A pre-approved mortgage is not necessary for closing a deal. However, it helps you close deals quicker since the seller knows he's lowering his risk with the buyer defaulting on the purchase. It makes you more attractive as a buyer and gives you the upper hand in negotiation. Besides, it will also tell you what's the highest price your mortgage can afford you.

Lockdown your interest rate

Banks tend to offer interest rates depending on how expensive the property will be. and it varies. While you may encounter a 0.25% increase in the rate which greatly affects your repayment, it’s still recommended to secure the interest for the loan you plan to get in advance. Do not test your chances on the fluctuations of the interest rate since you will be putting your loan at risk. 

Factors that can affect your interest rate include credit score, geographic region, property, the kind of loan applied for, if you have a preapproved mortgage and the number of attempts to secure at a favorable rate.

Negotiate process fees

From getting an escrow to a lawyer, every step of the process requires their involvement and routinely they will charge you for it. Some of them charge a bit higher, especially for clients who fail to educate themselves about the right rates for their services.

Junk fees cover items such as administrative fees, application fees, appraisal review fees, processing fees, and settlement fees. Fees for legitimate closing services can possibly increase. To avoid inflation for these fees, speak up and negotiate the cost of the processing fees. This can possibly result in getting the charges eliminated or reduced.

Undergo a complete home inspection

A home inspection refers to the thorough checking of the property to see if there are any problems with the physical aspect to the property. This also allows the potential buyer to know and feel the overall environment of the property. One of the benefits of a complete home inspection, you still can back out if you find any problems that may affect your lifestyle in the future. Also, you may also ask the seller to do the necessary repairs before moving in. In other cases, buyers will ask the sellers to do the repair or pay for them to have it fixed.

Conduct a thorough pest inspection

A pest inspection takes care of wood-destroying insects such as termites or carpenter ants. This happens when you call a specialist that ensures the safety of the property before it’s turned over to the buyer. Pests devastate properties especially if wood is the main material. Stairs, cabinets and other furniture can get severely damaged by these pests. A number of mortgage companies make sure that even small pest issues are dealt with before closing the deal.

When a small pest problem spreads out around the property, it gets very expensive to fix. Wood-destroying pests can be removed however, conduct the inspection before spending your resources to fix it. Some states require pest inspection and while in other states it is optional.

Renegotiate the Offer given

Renegotiating the offer happens after all the necessary inspections are done. When you discover problems within the property, buyers are always able to renegotiate the price to include repairs necessary. In some instances, buyers ask to retain the purchase price but ask for the seller to cover and pay for the necessary repairs and maintenance.

Eliminate Contingencies

If your real estate agent helps you craft a good offer on the property some contingencies should include:

• Getting approval for financing that has an interest rate that the buyer can afford
• A home inspection that zero shows problems around the house
• The seller fully disclosing any or other known issues around the house
• Pest inspectors not finding any pest happening around the property
• Seller says that they have completed any necessary repairs

These contingencies must be handled in writing at certain dates and then must be declared in the offer. On the other hand, some agreements have contingencies passively approved, or others know as constructive approval if you fail to question on their deadlines. Hence, it’s vital for buyers to comprehend and understand the entire process before signing any documents and do the necessary actions before the deadline.

Timed funding requirements

In most cases, buyers are eager to deal with the transaction and deposit the necessary downpayment to the seller’s bank account. This exemplifies good faith and seriousness from the buyer that may or may not impress the seller. If the buyer backs down from the deal without any reason, the amount may be a form of compensation to the seller. However, if the seller retracts the listing, the money will be returned to the buyer.

When you want to proceed with the payment, buyers are required to deposit more into the escrow. The previous payment is considered as down payment and if you need to arrange monthly payment, make sure to iron it out with the seller. When a payment fails, it causes trouble of the whole deal and buyer may still get charged.

Final review

I've met with so many buyers that are so energized by the fact that they're so close to closing a deal that they forget to have a thorough walkthrough of the property. I can't stress this point enough.

Before you finalize the deal, make a thorough review of the property. Check every room, floor, and even the foundation for the last time. Make sure that any damage didn’t happen since the last home inspection. Talk to the seller if there are still pending repairs to be done. If there are no new problems, then make sure that nothing is removed that is included in the purchase.

Understanding the papers

One of the most critical points about closing a real estate deal is the paperwork. However, some face a lot of paperwork with different legal terms and jargon, it’s best that you read it yourself too. 

"In some cases, buyers fail to completely understand the terms and conditions of the paperwork."

Getting educated on contracts is good but more importantly, remember to consult a lawyer and use him to guide you through it.

At some point, you feel the pressure coming from the people around you, such as the mortgage company, seller, or even your lawyer. However, it’s best to read the fine print before closing the deal to avoid any major impact that affects the investment opportunity. Don't let them force you into doing anything. Take your time, it's not their money on the line. Check the interest rate is correct and that it aligns with the other numbers in the deal.

Conclusion

As many deals as I've closed each purchase feels like the first time and so it should be. You need to make sure that the purchasing process is done right. You've arrived all the way here, don't lose it now. The profit in real estate starts by the price you can purchase it at and so many investors have come to us for dedicated cold callers to find the deals before anyone gets to it. 

Once you find and close a deal, then just keep learning. Learn from others but most importantly from your mistakes and your successes.