Financial Friday: Practical advice from a recent transaction.

A few weeks ago, we were finalizing the paperwork for a client’s closing. The deal had been a tricky one that required several extensions due to a delay with the surveyor. But finally, we were ready to close. The buyers were anxious, the sellers were anxious, and everyone was ready for the papers to be signed. 

There are several things we do to ensure the closing process goes as smoothly as possible for our clients. We first make sure that we reread through the contract one final time. The contracts are written to stipulate who pays for closing costs, home inspections, and home warranties. Contracts can have other stipulations, but we most often see buyers asking the sellers to pay closing costs. 

The closing costs can be estimated by your lender. Let’s use $5,000 as an example. Your lender estimates your closing costs will be around $5,000. So when your agent writes the contract for the home you want to buy, they will write something like “sellers to pay up to $5,000 in closing costs”. In theory, if the closing costs were only $3,500, then the seller would only pay $3,500 – since the contract stated “up to $5,000”. It seems simple enough. But at this particular closing, it was not. The estimate sent by the lender was off by more than $1,500. Usually we see some discrepancy, but never more than $100-300.

We receive a settlement statement prior to each closing to ensure that contract requirements are met and to review the closing costs and financial situation. This is essentially like an itemized receipt for the buyers and sellers. Everyone knows what they are paying in closing costs, taxes, insurance, and the like. It is also critical for an agent to review. This isn’t to say that the closing and title companies aren’t honest, but a real estate agent is bound by a duty of care and obedience to their client. 

Typically, we have no issues with the settlement statements. But for this particular closing, things were not lining up, and the statement was incorrect. After phoning with the buyer’s agent and their closing company (our clients closed with another firm), the mistake was reconciled. All good, right? Remember how we talked about closing costs earlier, and how sellers only have to be “up to” a certain amount depending on how the contract was written? The settlement statement also showed a difference in the actual closing costs and what was requested on the contract. Instead of our sellers paying the actual cost, the other closing company was going to have them pay the full amount, and then write a check to the buyers. Basically, our sellers would have been paying $1,000 to the buyers, for no reason! Just to be clear – closing companies cannot do this. Contracts must always be followed, period. Had we not done our due diligence as agents, our clients would have paid unnecessarily. 

This was a great lesson for several reasons. First, real estate agents do help with the home buying and selling process. We are held to certain ethical standards by the local, state, and federal government. Online platforms make it seem like agents are not needed, but they do serve a purpose in the transaction. Second, choose a closing and title company you trust and that is consistent! Third, always make sure the settlement statement is reviewed prior to the closing, and remember, you can ask for this to be itemized! Finally, you must always stick to the language and stipulations in the contract. 

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