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Closing the Deal

Closing the Deal

Estimated Closing Statement

During your initial contact with the closing officer, request an estimated closing statement based strictly on your known closing costs at that time and assuming the deal closes as scheduled. This statement obviously won't be precise. Factors such as whether you'll have to give the buyers a credit for repairs and if so, how much, have yet to be determined. No matter. At least you'll get an approximation of your expenses of sale and have a rough idea about the amount of money you may have to spend on your next home.

Get the estimated closing statement updated a week before scheduled closing. At this point, very few questions should remain. Check your second estimated closing statement extremely carefully, line by line from top to bottom, to be absolutely certain that it accurately reflects your credits and debits.

Closing officers are human. They sometimes make mistakes. So do other parties in the transaction who may inadvertently give the closing officer incorrect information.Your money is on the table. Pay attention to details. Review the closing statement and question any portion that isn't clear or correct.

Final Closing Statement

You may think that the most valuable piece of paper you get when closing is your check for the proceeds of sale. From an accounting standpoint, however, the most precious piece of paper is the final closing statement. If you think of the closing as a checking account, the final closing statement is your checkbook. It records all the money related to your transaction either as credits or debits.

Any money that you receive during closing is shown as a credit to your account. You won't have many credits; the biggie is always your credit for the amount of the sale price. You may get a credit from the buyers for the unused portion of property taxes you prepaid. You get a check from your insurance company for any unused portion of your homeowners insurance premium. By the same token, if your lender collects extra money from you each month that goes into an impound account used to pay your property taxes and homeowners insurance premiums, any excess funds in the impound account are paid directly to you by the lender after the sale closes.

Debits are funds paid out during closing on your behalf. Your biggest debit is usually the mortgage payoff. Other major closing costs listed as debits are the real estate commission, local transfer taxes, any corrective work credits you give the buyers, and, depending on the date the sale closes, a credit to the buyer for your share of unpaid property taxes. The list also includes an assortment of small charges for notary fees, recording fees, document preparation fees, messenger fees, and so on.

The final closing statement is extremely important. Be sure to keep a copy for your files; you'll want to refer to it when you prepare your income tax return. Some expenses of sale (such as the real estate commission, mortgage prepayment penalties, and property tax payments) are tax deductible. Furthermore, you may owe capital gains tax on any profit you made from selling the property.

Possession Options

The date the buyers actually take possession of your house and move into it depends on the terms of your contract. Here are the usual options:

Buyers move in the same day of closing.

This date is fine if you're absolutely, utterly, positively, beyond-a-shadow-of-a-doubt certain of two factors: the house you're selling has closed, and your next home will be vacant so you can move into it.

For two moving vans to occupy exactly the same driveway at exactly the same time borders on the impossible. Moving into a house while someone else is moving out is something you'll never attempt more than once.

If you intend to move directly from your old house into the new home you're buying, and the closing is delayed or the sellers of the house you're buying can't vacate their place, you've got a logistical problem.

Buyers move in the day after closing

We recommend this alternative because, by using it, you can be certain of closing. After all, you're still the owner until title transfers. Moving day is stressful, even under the best of circumstances. Why create unnecessary stress for yourself by trying to move out while the buyers move in? The sellers of your new home will probably also use the day to move.

Regardless of whether you move out of your house the day of closing or the following day, make cancellation of your homeowners insurance, utilities, and phone service effective one day after your scheduled closing and move. Carefully coordinate canceling your homeowners insurance policy with your insurance agent to avoid any gaps in your coverage.

Buyers move in after a seller rent-back

Sellers sometimes stay in their house several weeks after closing while waiting to get into their new home. If this situation happens to you, you'll sign a separate rent-back agreement with the buyers that becomes part of your purchase contract. The rent-back agreement covers who pays for utilities and maintenance, what happens if property damage occurs after the closing, how much rent you must pay the buyers, and what penalties result if you don't vacate the house on the date specified in your rent-back agreement.

Sellers customarily pay rent equal to the amount the buyers must pay for Principal and Interest on their mortgage plus property Taxes and Insurance, so they break even on the cost of owning the house during the term of your rental. PITI, as this figure is known, is prorated on a per-day basis from closing until you vacate the property.

For example, suppose that PITI is $50 per day, and you expect to be out three weeks after closing. You and the buyers instruct the closing officer to hold four weeks PITI so you both have a cushion if you encounter an additional delay moving into your new home. When you move, you and the buyers jointly instruct the closing officer to pay the buyers $50 per day for the actual rental period and to refund the unused portion of funds to you.

Final Inspections and Risks

If you vacate your house prior to the close, the buyers may ask your permission to start fixing the house up before closing. After all, painting or waxing floors, for example, is much easier and faster if the house is empty. Don't do it! The buyers may poke around and find a molehill that they turn into a mountain of trouble for you. If the deal falls through, you may get your house back in terrible condition. If the house catches fire, your insurance may not cover the losses. No matter how piteously they plead, be firm. Don't let the buyers do any work on your house or, worse yet, move into the house prior to closing.

The final verification of condition

If your buyers are smart, they'll inspect the day before closing to be sure your property is still in the same general condition that it was in when they signed the contract to buy it. Most residential real estate contracts contain a "Final Verification of Condition" clause.

If the buyers discover the property damaged or in different condition, they can instruct the closing officer to stop the closing until the problems are resolved. If you and the buyers can't work out a mutually satisfactory solution, the dispute could kill the deal.

Be sure to maintain your property inside and out until closing and you move into your new home. Make sure that the movers don't damage the property when removing your belongings. Unless you and the buyers make other arrangements, your property should be left "broom clean"—remove all garbage, trash, and litter, and then vacuum carpets and sweep floors.

Seller's Remorse

Most house sellers and home buyers suffer, to greater or lesser degrees, the ravages of a peculiarly debilitating distress during their transactions and for up to six months after their deals close. Depending on which side of the contract you happen to be on, it's either called seller's remorse or buyer's remorse.

Seller's remorse is a stupendously strong conviction on your part that you're about to sell your house for less than it's really worth. When you're in the cruel grip of seller's remorse, facts take a back seat to perceptions.

The buyers of your house probably have an equally strong conviction that they are paying you way more than your house is worth. Their doubts began when they signed the purchase contract. The only thing that counts is their perception that they're overpaying.

If you're selling your old house and at the same time buying a new home, you are most likely being devastated by the dreaded double whammy—simultaneous buyer's and seller's remorse.

Confronting your fears

The first step in your recovery program is to see seller's or buyer's remorse for what it is— plain, unadulterated fear. As a seller, you fear that you undervalued your property. As a buyer, you fear that you overpaid. By scrutinizing these hidden fears in the bright light of day, you can counter them with facts.

Discuss your deal with friends, neighbors, business associates, and folks standing in front of you in the check-out line at the supermarket. You ask anyone and everyone you can grab if they think that you're getting a good deal. This exercise is only good for venting your fears.

Read classified ads in the real estate section of your newspaper even more intently than you did before you signed the contract. As a seller, you circle all the ads for houses that aren't as nice as yours that have higher asking prices. As a buyer, you circle ads for houses that sound similar to or nicer than the one you're buying, but that have lower asking prices. Keep in mind, that most houses don't sell for the asking price. Conversely, most houses read much better than when you tour them.

Spend Saturday and Sunday touring open houses. The streets are filled with remorseful buyers looking for better deals and remorseful sellers searching for less-nice properties with higher asking prices. Seeing, after all, is believing. Touring property is the best way to determine if your fears are valid or groundless.

Facing the ultimate test

The faster you get your fears out in the open and confront them with facts, the lessyou'll suffer. Pricing and negotiation are arts, not precise sciences. If you have the time, energy, and skill to search long enough and negotiate hard enough, you may find a buyer who'll pay a little more for the house you're selling or, conversely, a seller who is willing to accept a slightly lower price for the next home you purchase.

Don't beat yourself up with asking prices. Asking prices are fantasies, sale prices are facts. You can sleep soundly if the price you got as a seller or the price you paid as a buyer is in line with the sale prices of comparable properties. Get on with your life and remember— your home is an excellent long-term investment.