Real estate closing is associated with several important terms that help the parties involved to know when a transaction is completed. Upon the acceptance of the offer for the property in question, the buyer and the seller will set a date for closing where they come across various terms such as required disclosures, contingencies, default, and counter offer among others. With the significance of such concepts, it is important for all buyers and as sellers to understand them and their implication to the Real Estate Closing.
Required Disclosure
The required disclosure is a term that describes the aspects of the real estate property that the seller is required by law to disclose to the buyer. The law requires that where an aspect of the property could potentially affect the judgment and evaluation of the value of the property, the seller is under obligation to disclose such aspects to the buyer (Hoesli & Reka, 2015). Moreover, where there is a potential for harm to the buyers, the seller is under a legal obligation to disclose such information. There are several disclosure requirements the seller is required by law to adhere to. These include well disclosure, lead paint disclosure, methamphetamine disclosure among other disclosures.
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The well disclosure requires the seller to disclose the existence of well on their property. The seller may equally indicate that he or she is not aware of any well on their property during this disclose. Where the seller is aware of the existence of a well, the disclosure document must accompany a map indicating its exact location. The disclosure must further indicates whether the well is open or closed. Secondly, the led paint disclosure requires the seller to disclose any lead paint within the building that could potentially expose the buyer to the ingestion of lead (Hoesli & Reka, 2015). This would put the buyer’s health at risk. The methamphetamine disclosure requires the seller to equally disclose if methamphetamine has previously been produced on the property being sold.
The disclosure requirements are very important in the real estate closing process. For instance, they protect the seller from any potential harm they are likely to suffer due to purchasing the property in question. In the disclosure, the seller may indicate the presence of lead, which could have devastating effects on the health of the buyer (Hoesli & Reka, 2015). Secondly, the disclosure enables the buyers to determine the exact value of the property being sold. Some aspects have the effect of lowering the value of the property. When the seller fails to disclose such aspects, the property remains overvalued and may result in lawsuits upon discovery of the hidden vital information. As such, disclosure enables the buyer to obtain a value for their money.
Escrow Closing
An escrow is a third party argent that that helps to oversee and facilitate real estate closing. Therefore, escrow closing is a type of real estate closing where another agent oversees the entire process of real estate closing. The escrow could be an attorney, a real estate agent, or an escrow department of a financing financial institution (Farncombe & Waller, 2005). Several states have put in place laws and policies that regulate the work of an escrow. As such, such laws bind their operations in the states within whose jurisdiction they operate. Escrows are expected to be neutral to all parties and equally take instructions from both parties.
The real estate transactions require great expert knowledge and often involve considerably large sums of money. The escrow comes in to facilitate the transaction by offering the expert knowledge and skills required in this transaction and equally facilitate cash transfers between the seller and the buyer. Both the seller and the buyer have the responsibility of agreeing on the terms and conditions of sale. Once they do so, they pass such agreements to the escrow who structures the agreement in a way that is acceptable and recognized by law. The agreement outlines the specific actions that the escrow will undertake in order to finish the real estate transaction. The escrow charges a fee for facilitating this transaction. This fee is catered for by both the seller and the buyer in equal proportions.
Escrow closing is of great significance to the real estate closing process. As noted, the real estate transactions require expert knowledge and involve the transfer of a large amount of money. The escrow bridges this gap both by providing expert knowledge as well facilitating safe and secure transfer of funds between the buyer and the seller. The escrow also helps in creating some level of trust between the parties involved.
Title Search
A title search is a process of obtaining or retrieving documental evidence that shows the history of events in the ownership of a given real estate property with the view of determining the relevant interests in the property has as well as any regulation that may concern that property (Farncombe & Waller, 2005). Therefore, a title search is part of the buyer’s due diligence before committing to buy a given property. The process is conducted as a way of finding out three fundamental aspects of the real estate property in question. The first question relates to determining is whether the seller indeed has sellable interests in the property that he/she intends to sell. The second question is whether there are any restrictions or alliances relating to the property in question. This could include equitable servitude, easements, and real covenants (Giambona, Golec & Schwienbacher, 2013). The third question of considerations is whether there are aliens that exist on the property in question that may require to be paid off during the real estate closing process.
The title search process is important for several reasons. Firstly, it enables the buyer to eliminate any potential fraud. Some people may take advantage by selling properties even when they do not have sellable interests. As such, the buyer can ascertain the interest of the seller before committing to buy. Secondly, the title search process enables the buyer to determine if any other person has an interest in the property in question. This is helpful in avoiding any possible lawsuits in future such as trespassing on someone’s property.
Closing Cost
The closing cost refers to all the cost that the seller and the buyer incur at the point of closing the real estate transaction. At this point, the seller transfers the title deed of the property to the seller who incurs several closing costs during transfer. For instance, an application fee is charged where the buyers are being financed to acquire the property by a lender. The attorney fee is equally charged as the closing cost of the transaction. This is the payment for attorneys who act as an escrow or serves to verify the documents of sale. The courier fee is charged to cater for any transportation of documents required at the point of closing the transaction. Homeowner insurance includes the cost of insurance that the buyer may wish to incur in order to cover the property from different risks (Giambona, Golec & Schwienbacher, 2013). These examples of costs among others collectively form what is referred to as a closing cost.
Closing costs are significant to the process of real estate closing as they cater for all the services that facilitate the entire process of real estate closing. Therefore, they facilitate a smooth transfer of the ownership of the property from the seller to the buyer.
References
Farncombe, M., & Waller, A. (2005). Outsourcing for corporate real estate managers: How can real estate learn lessons from other industries? Journal of Corporate Real Estate, 7 (3), 258-270.
Giambona, E., Golec, J., & Schwienbacher, A. (2013). Debt Capacity of Real Estate Collateral. Real Estate Economics, 42 (3), 578-605.
Hoesli, M., & Reka, K. (2015). Contagion Channels between Real Estate and Financial Markets. Real Estate Economics, 43 (1), 101-138.
