Questions and
Answers on Real Estate Closings
In the typical residential real estate transaction, a buyer
offers to purchase property from a seller. After
negotiating the price and terms, the buyer and seller sign an
offer to purchase and contract, and the buyer gives the seller
(or the seller’s agent) an earnest money deposit to show good
faith in the transaction. A real estate “closing” is the
final step in the transaction. At closing, the buyer pays the
purchase price to the seller (usually with the proceeds from a
loan), and the seller gives the buyer a deed
transferring title to the property to the buyer. Also, funds are
paid to an appraiser, home inspector, and/or other service
providers, and to pay off banks or others who may have claims
against the property. This pamphlet focuses on questions
frequently asked about residential real estate closings. The
questions raised are of special concern to real estate
purchasers. Consequently, they are posed from the standpoint of
the purchaser.
Q: Does a “loan commitment
letter” guarantee that I have a loan to buy the property?
A: No. The standard form Offer to Purchase and Contract requires
you to use your best efforts to obtain a loan before a specified
date. If the seller requests it, you must give the seller a copy
of your loan commitment letter within 5 days following the
written request. A loan commitment letter does not guarantee
that the lender will make the loan. It simply means that,
based upon an initial review, your credit appears sufficient to
qualify you for the necessary loan amount. After issuing the
letter, the permitted in the purchase contract. lender may
refuse to approve your loan if there are any changes in your
employment, creditworthiness, or
other changes which might affect your ability to repay the loan.
The lender reserves this right until the deed is recorded
transferring title and the loan proceeds are actually disbursed
at closing.
Q: What kind of inspections do I really need to have to find out
about the condition of the property?
A: A number of inspections are highly recommended.
They should be provided for in the purchase contract,
even if they are not required by the lender. Remember,
the standard Offer to Purchase and Contract states that
“closing shall constitute acceptance of the property in
its then existing condition unless provision is otherwise
made in writing.” In other words, once closing is
completed, you may be found to have accepted the
property in its existing condition.
The most important inspections are:
• Home Inspection
A home inspector typically examines the condition of
the property, including the plumbing, heating, cooling,
and electrical systems, and the structural components.
In North Carolina, professional home inspectors must
be licensed. Read the home inspection report carefully,
and be sure to ask the seller to complete all repairs Not
having a home inspection may save you money “up front”, but it
could be very costly if you find after closing there is a major
defect in the property. You may also need additional inspections
performed by a specialist,
such as an electrician, heating and air conditioning contractor,
or a structural engineer.
• Wood-Destroying Insect Inspection
Have a licensed pest control operator perform a pest
inspection prior to closing. It should reveal evidence
of wood-destroying insects, if any, that could adversely
affect the structure.
• Survey
A survey provides accurate measurements of the
property; its precise total area; the location of buildings
and other improvements to the property; and any
encroachments, easements and possible setback
violations. You are typically responsible for paying
for the survey. Examine the survey prior to closing
to make sure the acreage and other conditions of the
property match what you were told by the seller or
real estate agents and what is shown in the purchase
contract. You should also be aware that the title
insurance company may exclude from coverage
problems shown on the survey which are not resolved
before closing.
• Appraisal
Virtually all lenders will require you to pay for an
appraisal of the property to determine if its market
value meets or exceeds the purchase price. Review
the appraisal report prior to closing to make sure the
value of the property, its square footage and features
match what you were told by the seller or real estate
agents and what is shown in the purchase contract.
• Wells and Sewage Disposal Systems
If you are buying a property served by either a well
or a septic system (not city water or sewer), you
should have them inspected prior to closing. A well
inspection and separate water test should be done
to determine whether there is an adequate amount
of water and water pressure for the property and if
there are any harmful contaminants in the water. An
examination of the septic system should determine if
it is adequate to support the property and is properly
performing. Repairs to these systems can be very
expensive.
• Radon
Radon is a radioactive gas that can be found in homes
all over the United States. Any home can have a
radon problem, regardless of its age or condition.
Therefore, you should have the property tested for
radon to make sure that any detectable radon is at or
below EPA’s guidelines for an “acceptable” level.
Q: What is title insurance?
A: The lender will probably require you (the
borrower) to purchase title insurance to protect its
interests from potential title problems. Before issuing a
title insurance policy, the title company will require the
closing attorney to perform a title search to discover
any problems with the title to the property. Problems
found during the title search (such as unpaid
fences, outbuildings, etc. By exercising their voting
rights, members have input into decision-making.
If you are purchasing property in a subdivision
or planned community, prior to closing you should
obtain documentation as to any dues, assessments,
covenants, rules, restrictions, and services provided.
If the real estate agent(s) or closing attorneys do not
give you relevant documentation prior to closing, ask
them for the most current copy and review it before
you close.
Q: What happens if the property is damaged or
destroyed after I sign the purchase contract but
before closing?
A: Typically, the purchase contract requires that
the property be in substantially the same or better
condition at closing as on the date you contracted
to buy it (normal wear and tear excepted). If the
property is damaged or destroyed by fire or other
casualty prior to closing, the risk of loss is on the seller.
The buyer has the option to wait for the seller to repair
or reconstruct the property or to terminate the contract
and recover any earnest money deposit.
Q: Who closes the transaction?
A: A real estate closing is completed when the
seller conveys the title to you by deed, you give the
purchase money to the seller, and the appropriate
documents are recorded with the Register of Deeds
office in the county where the property is located.
The closing will probably be handled by an attorney
chosen by you. In many transactions, the attorney
may also represent the lender and the seller. The
seller may hire his or her own attorney or pay
your attorney to prepare the deed to give to you.
Make sure you know “up front” who the attorney
MAKE ADJUSTMENTS FOR DOT GAIN.
judgments, taxes, mortgages, etc. on the property)
must be corrected before closing.
For a few dollars more you can also purchase
your own title insurance policy to cover you from title
problems with the property which may not have been
discovered prior to closing. If a problem covered
by your policy is discovered after closing, the title
insurance company will help clear up the problem or
compensate you for any losses you have sustained.
Like any insurance policy, there may be exceptions in
your coverage, so it is critical that you carefully read
your policy and refer any questions to the closing
attorney.
Q: What if the seller wants to give me a nonwarranty,
or quitclaim deed?
A: The deed transfers the seller’s interest in the
property to you. There are many different types of
deeds. The best one — the general warranty deed
— contains the seller’s warranty that good title is being
conveyed to you. A quitclaim (or non-warranty) deed
contains no warranties at all; therefore, you accept
title from the seller “as is.” A special warranty deed
contains limited warranties from the seller. If you are
given anything other than a full or general warranty
deed, immediately consult with your attorney.
Q: What is a “homeowner’s association”?
A: If you buy in a residential subdivision or
planned community, it is likely you will be joining a
homeowner’s association. A homeowner’s association
is a group of property owners that acts like a private
local government, providing services or benefits
to its members such as a clubhouse, pool or trails.
Members pay for these benefits in accordance with the
association’s bylaws. Homeowner’s associations may
also regulate the use of common areas, paint colors,
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