One of the most exciting days in any real estate transaction is the closing day when you get your keys and officially become the new owner of a home. COE or close of escrow is the term given to the last step in the real estate purchasing process.
There are a plethora of factors to consider when closing escrow. This article helps to highlight a few of the most prevalent concerns new owners have.
Escrow can mean different things in real estate. For most people, escrow is simply a vehicle where monthly payments such as homeowner’s insurance, mortgage insurance, and property taxes are kept. This type of escrow account is vital in most COE real estate deals that involve a USDA or FHA loan. Nevertheless, there is another form of COE real estate to consider.
Generally, it is common practice in the real estate business to use an escrow account to keep a host of financial items till the closing and when the new owner gains possession of the home. The escrow account holds the deposit made by the buyer till mortgage financing is secured.
In such an agreement, the seller vows to give the prospective buyer enough time to secure financing and inspect the house. Financial documents such as a home appraisal must be available to close on a property.
If everything works out, both seller and buyer can agree to close the deal within two months. For instance, the prospective buyer might need to get the house appraised or inspected by a particular date set in the purchase agreement.
At this time, COE takes place with the seller providing the house to the buyer. At this point, the seller doesn’t have to be there since the escrow account is being used. Typically the documentation that transfers ownership is signed and delivered to an escrow agent, the real estate agent, or an impartial third party.
In most real estate transactions, the close of escrow does happen. However, since most people purchase property via financing, getting funding can take some time. The same is true when a buyer purchases the property with cash, as they might be required to place a deposit.
This deposit provides the prospective buyer enough time to properly inspect the home and discover any significant damage that might cause a rethink.
Escrow closes only when the buyer and seller have met all the contract terms. The closing date is generally when transactions must be completed, and the title of ownership must be transferred. In contract negotiations, all the required materials are exchanged long before the closing date, which causes escrow to close due to inactivity.
Alternatively, the buyer could get the title of ownership at a later date, which becomes the official completion date. The seller doesn’t have to be in the meeting if this process happens before escrow closure.
It is possible that escrow doesn’t close during the day of closing; it all depends on the conditions of the real estate transaction. Irrespective of when contract negotiations become final, there are a few actions that both parties need to take.
For the buyer, they need to make an earnest money deposit – also referred to as a good faith deposit. This is typically a percentage-based or fixed amount the buyer needs to pay once the purchase agreement has been signed. This process is handled by escrow.
The seller will complete all necessary paperwork to transfer the property’s ownership to the buyer at this time. This will include the title, deed, and any monies connected to the deal and agreed by the real estate commission and seller concessions.
The buyer will then receive a duplicated set of keys if they intend to take possession of the home immediately after the closing date.
Keys, money, and documents are kept by the escrow agent – an impartial third party. The escrow agent can assist both parties with any required paperwork. The escrow agent’s role is to ensure that all the money is appropriately disbursed.
The following steps have to be taken for both parties to close escrow:
Once the purchase agreement is signed, then a good faith deposit is made. In most real estate transactions, the deposit is converted into a down payment, showing the seller that the buyer is serious about purchasing the property.
The escrow agent takes the money and uses it as a security deposit. As an intermediary, the escrow agent is also charged with keeping any keys, funds, or documents that might be included in the real estate transaction.
The seller must complete the Seller’s Property Disclosure before selling their property. The seller is legally mandated to record any past incidents or problems the property has encountered so long they are aware of it.
This legal document will also include any significant faults the listing real estate agent has noted. Buyers are advised to inspect the property to avoid unpleasant surprises, even if the seller provides the property disclosure statement.
The buyer will need to appraise the house before acquiring a loan. Most lenders require an appraisal before they can provide funding for a home. The last thing a lender wants is to provide funding for a house that isn’t valuable enough.
The buyer is responsible for the appraisal and inspection costs. The buyer can ask the seller to make repairs if any issues appear.
Both parties must go through the documents together to ensure that both copies say the same thing. If there are discrepancies with both copies, they need to be rectified before the transaction can move forward. At this stage, both parties should hire a real estate lawyer to go over the terms and conditions before signing the contracts.
Buyers are advised to take pre-closing inspections. This process allows the buyer to search for further property damage. It also lets them check that all the items and appliances agreed upon have been left in the house.
If the buyer detects some damage, the buyer can ask the seller to fix the faults or renegotiate the contract to factor in the cost of repairs.
Colorado doesn’t mandate that both parties be present for this step; however, in most cases, both parties are commonly present. Legal counsel for both parties is also present as documents must be signed. Some of the documents include:
The buyer must provide a cashier’s check covering the closing costs. Once done, the escrow company prepares the property deed, delivering it to the new owner.
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