Real estate closings should be a happy experience for all involved. The Seller is receiving money, the Purchaser is acquiring a new home and the professionals handling the sale are getting paid. Our 25 years of experience at Liberty Title can help make sure your closing is a smooth one, with a happy ending.

The keys to a smooth closing are good communication and adequate preparation. Your title company plays a key role in both areas, by acting as a clearinghouse for information and as an independent third party to handle the funds, prepare many documents and manage the closing process.

The following sections offer a brief run-down on the closing process, explain "closing costs" and offer you some tips for a smooth closing.

The Closing Process

The road to closing starts with the signing of the Purchase Agreement. This document determines the Sellers' and Purchasers' obligations to each other and sets out a timeline for the closing process. Besides specifying the price and identifying the property to be sold, the Purchase Agreement will allocate closing costs, specify the time for performance and set out what events ("contingencies") may lead to the Purchaser not completing the transaction (e.g. - failure to obtain financing).

(click here to go to our forms section for a sample Purchase Agreement.)

At the same time they sign the Purchase Agreement, the Purchasers will usually tender to either the real estate broker or the title company an earnest money deposit of 2-5% of the purchase price to secure their performance under the Purchase Agreement. Both Purchaser and Seller then proceed to remove contingencies and prepare for the closing. On the Purchaser's side this usually means finding financing and hiring inspectors. On the Seller's side, this means hiring a title company, obtaining payoff information on the existing mortgage and making any repairs required by the Purchase Agreement.

When all contingencies are removed, the Seller and Purchaser work together with the title company and the Purchaser's lender to establish a time and place for a closing that meets the parameters established by the Purchase Agreement. In Washtenaw/Livingston counties almost all closings are conducted at the title company.

Once a closing date and time have been established, the title company (and occasionally a real estate agent) will coordinate the activities of the Seller, Purchaser, Purchaser's lender and other parties involved in the closing. The Seller will authorize the drafting of payoff letters for existing mortgages, the Purchaser's lender will supply its "closing costs" and loan documents to the title company and the title company will prepare "Settlement Statements" or "Closing Statements" based upon the Purchase Agreement.

Closing documents are then distributed by the title company to the parties, their counsel and the real estate agents for review. This often happens very shortly before the closing, so do not be surprised if you receive your final closing figures the day before the closing. The closing is then conducted by the title company, documents are signed, funds exchanged and the transaction is finalized by placing the deed, mortgage and other documents on the public record. The transaction concludes with the issuance of the title insurance policy to the Purchaser and the receipt by the Seller of their canceled loan documents from their lender.

Closing Costs

"Closing Costs" is a catch-all term that refers to the costs and expenses involved in closing a real estate transaction. These costs are determined by the contracts between the parties, applicable laws and local customs.

The following explanation of "closing costs" is based upon our sample Real Estate Purchase Contract (see the Forms section for a downloadable copy), Washtenaw County custom, and assumes typical mortgage closing expenses.

Seller Closing Costs.

The Seller usually incurs the following "closing costs", ranked in order of amount:

1) Transfer Taxes. Michigan law levies two separate taxes on the sale or other transfer of real estate. The taxes total $8.60/$1000.00, so the transfer tax bill on a $200,000.00 home is $1,720.00.

2) Title Insurance. A Seller normally purchases a title insurance policy for the benefit of the Purchaser. This should cost approximately $3.50/$1,000 if the Seller receives the appropriate "reissue discount" -- a credit that is based upon providing a copy of the Seller's existing title insurance policy to the title company. Liberty Title offers higher discounts than many other companies and gives credit for policies issued by other firms, so feel free to call us for a quote.

3) Closing Fee. If a real estate agent represents the Seller, there should be no closing fee as the commission covers the cost of preparation of the closing statements. If you are selling "by owner", you should expect a "transaction management" fee from a title company of $150-$500 to cover the cost of preparing settlement statements.

4) Water/Utility Escrows. Because it may not be possible to get final water/utility bill readings prior to closing, it is not unusual to have $200-$400 of the Seller's proceeds held back by the title company on the condition that they will be turned over to the Seller when proof of payment is tendered to the title company.

5) Inspections. Sellers often pay for the termite inspection ($50-$200). If the property is served by a well and septic system, the Seller also usually pays for the required inspection in Washtenaw County ($150-300).

6) Miscellaneous. Sellers may also pay the following miscellaneous expenses: a) recording fees on Powers of Attorney, Trust Certificates or other documents that the Seller may be responsible for recording ($9.00 for the first page, $2.00 for each additional page); b) Courier fees to Federal Express for loan payoffs ($10-$15); c) wire transfer fees if they want their sale proceeds wire transferred to their bank ($20-$30); and d) attorneys' fees for deed and property transfer affidavit preparation ($35-$75).

Other Seller Costs.

The Seller will also be responsible for the following other payments at closing, although these are not usually deemed "closing costs":

1) Real Estate Commission. If a real estate broker or agent is involved in the transaction, the Seller will normally pay a commission of approximately 6% of the sale price. This cost is determined by the terms of the listing agreement - a contract between the Seller and the real estate agent. Occasionally the Purchaser may pay part of the commission, but only if a "Buyer's Broker" agreement has been reached between the Purchaser and his real estate agent.

2) Attorneys' fees. Should the Sellers engage an attorney to represent them in the transaction, attorneys' fees of $500-$1500 will probably be incurred on a simple residential transaction. Carefully discuss the scope of representation with your attorney so that you are not surprised by the bill. If the attorney is involved in lengthy negotiations, or if there are title or physical problems with the property, expect to pay more.

3) Mortgage payoffs. Payoff Statements need to be obtained for all Mortgages. The Seller should be careful to not use their home equity credit line prior to closing and will need to bring in all unused home equity checks and debit cards to closing.

4) Payment of delinquent taxes. All delinquent taxes will need to be paid to allow recording of the deed.

5) Payoff of all current and future installments of "special assessments" . Special Assessments are a specific type of property tax levied against some properties for street paving, sewer service or other public improvements that benefit the property. Most Purchase Agreements require the Seller to pay these taxes off in full, as the Purchaser usually assumes that all public improvements have been paid for by the Seller.

Seller Credits

Sellers can also expect to receive credits that will supplement the Purchase Price. The major credit is the "tax proration" -- a reimbursement to the Seller by the Purchaser of a portion of the property taxes paid by the Seller in the year preceding the closing. Credits may also be given for homeowners association fees, prepaid service contracts and unused fuel oil or other heating fuels.

Purchaser Closing Costs.

The "closing costs" paid by the Purchaser can be divided into two categories

Sale Costs
The following items are typical sale closing costs paid by the Purchaser:

1) Tax Prorations. The tax proration is a reimbursement to the Seller of a portion of the prior year's real estate taxes. This is usually the most significant Purchaser closing cost. Washtenaw County uses a "due date" method of tax proration that views property taxes as purchasing government services for the year following the "due date" of the property tax bill - July 1 for summer taxes and December 1 for winter taxes. If a transaction was to close on September 1, the Purchaser would reimburse the Seller for 10/12 of the previous July tax bill and 3/12 of the previous December tax bill on the theory that the Purchaser would enjoy those proportions of the services purchased by those tax bills.

2) Inspection Costs. While the Seller usually pays for termite and well and septic inspections, the Purchasers usually pay for radon or contractor's inspections. These range in cost from $200-500.

3) Recording Fees. Recording fees of $9.00 for the first page and $2.00 for each additional page on the deed and mortgage are usually born by the Purchaser. Expect to pay $11-$50 depending on how many documents are recorded.

Loan Closing Costs
Loan closing costs vary tremendously based upon the type of loan and whether or not a Purchaser is paying "points" to "buy down" the interest rate on the loan. Typical loan closing costs include the appraisal ($250-$400); credit report ($25-$75); document preparation ($100-$150); survey ($100-$250); underwriting ($100-$300) loan closing fees ($300-$400) and courier fees ($50-$150).

In addition to these loan closing costs, the Purchaser will also usually need to bring money for two other significant items that are not really "closing costs" -- prepaid interest and escrow deposits.

Prepaid interest. This is a charge from the lender at closing to cover the interest accruing on the loan for the remainder of the month during which the closing takes place. This is because lenders collect interest "in arrears" -- your February 1 payment covers January interest. The prepaid interest allows the lender to start the accrual of interest on the first day of the month following closing. The good news to Purchasers is this means no mortgage payment the first month after closing! Just remember, the earlier in a month you close, the more prepaid interest will be collected at closing.

Escrow Deposits. The second major expense that Purchasers fund at closing is their "escrow deposits -- funds that are given to the lender so that they can pay the property taxes, homeowner's insurance and if applicable, private mortgage insurance (PMI). The amount collected by the lender is limited by federal law and you will receive exhaustive disclosures at closing explaining how the amount being withheld was calculated. A safe "guesstimate" of escrow deposits will be one-half of the annual property taxes and insurance -- more if you are closing close to July 1 or December 1, the dates on which most Michigan property taxes are due.