Frequently Asked Questions – Real Estate Closings
Lots of questions run through a buyer and seller’s mind when buying a new home in Florida. Based on Larry Tolchinsky’s 25 years of experience, the following questions are frequently asked:
- Where Does the Closing Occur?
- How Are Real Estate Taxes Prorated At the Closing?
- What is the Florida Homestead Exemption and When Should I Apply?
- Can a buyer or seller back out of a real estate contract before closing? How?
- What happens at a real estate closing?
- What does a lawyer do when closing a real estate transaction?
- How do you read a real estate Closing Statement?
- How long does a real estate closing take? Can a real estate transaction in Florida close in one week?
- Which individual represents a lender in a real estate closing transaction?
- What are closing costs in a residential real estate transaction?
- Who and what usually holds up the closing of a cash real estate transaction?
- Who has responsibility for an accurate closing?
- What does clear to close mean in real estate?
- What do you have to bring to a real estate closing?
- Does death cancel a real estate contract before/after closing?
- Who checks for clearance of title for real estate property before closing?
Below, Larry Tolchinsky does his best to answer these questions with links to relevant articles about these issues.
The location selected for closing should accommodate all necessary parties. Standard I of the FAR/Bar Contract states that the closing is to be held in the county where the real property is located, and further provides that the physical location of the closing is to be the office of the attorney or other closing agent designated by the party who pays for the title insurance, or, if no title insurance is obtained, the location designated by the seller. The closing agent should ensure that a notary and two witnesses are available.
Real property taxes are paid in arrears (meaning at the end of the year) in Florida and are not assessed until November of the year for which they are due. Therefore, when a closing takes place between January and the first week in November, the amount of the current years property taxes are unknown. As a result, the parties base the tax proration on the prior year’s amount. When the tax bill is finally received, the parties should re-prorate the taxes if necessary. At closing, the parties usually sign a re-proration Agreement agreeing to re-calculate the taxes owed. At closing, it is customary to use the maximum allowable discount when prorating taxes.
Note: If the home’s assessed value has been artificially suppressed under the “Save-Our-Homes” amendment to the Florida Constitution, the buyer can expect a large jump in ad valorem taxes within two years. The buyer should contact the local tax assessor before closing for an estimate of their new tax obligation.
Article VII 6, of the Florida Constitution and F.S. 196.031 contain what is known as the homestead exemption. It provides a homeowner with an exemption against taxation on up to $50,000.00 of the value of their residence. Meaning, $50,000.00 is subtracted from the assessed value of the home for purposes of calculating ad valorem taxes due on the property (under the law, its actually $25,000.00 and another $25,000.00 for a combined $50,000.00 of exemption, but the second $25,000.00 is not exempt from school district taxes). A new homeowner must apply to the tax assessor’s office to obtain this exemption. Also, because of the “portability” provision in a 2008 amendment to the Florida constitution, a homesteaded owner may now move up to $500,000.00 of tax exemption from one Florida home to the next.
A new homeowner should call the local tax assessor’s office to find out when to apply for the homestead exemption. Frequently, the filing dates are between January 1 and April 1 of the first full year of the client’s ownership, meaning the new owner must own the home on January 1 for the year that they are filing for the exemption. Late filing will result in a loss of the exemption for that year.
There are four possible ways that a party can back out of a real estate contract before closing: 1) The buyer can do so during the inspection period if they are not happy with the results of the inspection; 2) The buyer or seller may be able to get out of a contract depending on contingencies within the agreement. For example, the buyer’s obligation to close may be contingent upon the closing of their own house; 3) If there is a title defect and the seller is unable to correct the defect in a manner that is satisfactory to the buyer. This option is now possible because of the foreclosure crisis from years ago; 4) If the buyer is unable to get financing in a timely fashion, then the buyer can back out of the contract. However, the buyer has to act in good faith and make his or her best effort to get a loan; and 5) If the home being purchased is a condo, then the buyer has 3 days within receiving the condo documents to back out of the transaction.
At a real estate closing, the buyer signs the loan documents, including the mortgage. The seller signs the seller documents, which include the bill of sale, warranty deed, and an Owner/Seller Affidavit. The seller receives the seller proceeds and gives the buyer keys to the property. The realtor is paid his or her commission. The deed is sent to the recording office.
A real estate lawyer closes a transaction just like a title company would, and for the same cost. However, it is best to hire a real estate lawyer from the beginning of the transaction in case an issue arises, so the attorney can step right in as he or she is already familiar with the transaction. The attorney has an obligation to serve the best interest of the client, while realtors and title companies are more concerned with simply closing the deal. The bottom line is that title companies and lawyers do basically the same thing in a real estate closing, but a real estate lawyer will guide you towards your best option, rather than rush you to close a deal.
There are no longer “Closing Statements”, but rather Closing Disclosure documents. The Consumer Financial Protection Bureau requires full disclosure with real estate agreements. The Closing Disclosure is rather self-explanatory, as the main purpose of the change from statement to disclosure was to make the documents easier to understand.
The Closing Disclosure outlines what the closing costs are, as well as the details about the buyer’s loan, if any. The Closing Disclosure breaks down the costs, which of those costs are negotiable and which are not, and how much money is coming in and going out.
We recommend checking the document for accuracy, just to be safe. Here’s a list of things you should definitely check: the loan information is correct, the spelling of your name, total monthly payment, and be sure that the dollar amounts on the Disclosure match the Loan Estimate. For a complete list that explains the Closing Disclosure, go to CFPB’s article here.
8. How long does a real estate closing take? Can a real estate transaction in Florida close in one week?
If it’s a cash closing and there are no issues, the actual closing takes about an hour. If there’s a mortgage involved, then it depends on the buyer’s attention to the documents. On average, the actual real estate closing will take an hour to two hours if there is a loan involved.
In terms of how much time a closing agent needs to get a file ready to close (meaning, the amount of time between the time he or she is hired and the actual closing), that answer depends if it is a cash deal. A cash deal can close within two weeks, and likely one week if pushed to do so, but the answer will depend on the amount of due diligence the buyer wants to perform. See question 11 below.
The title agent closing the deal has certain obligations to the bank in terms of following the closing instructions. In a residential transaction, there is typically no legal representation for the lender.
Generally, buyers will pay between 2 to 5 percent of the price of the property in closing costs. Closing costs include, but are not limited to, government taxes, title insurance, appraisal fees, tax service provider fees, credit report, and prepaid expenses such as property taxes or homeowners insurance.
The most common reason for the delay of a cash real estate transaction is that the buyer needs time to perform a title search, have a survey of the property, and/or conduct a lien search. Those are the three basic law-related searches a buyer should conduct before closing any real estate transaction in Florida. Of course, a buyer should always have a property inspection and request that the Seller provide a Seller Disclosure statement about the condition of the property. Also, if the property is a condo, then the transaction could be held up due to waiting for the estoppel letter from the association.
The closing agent, whether it is a lawyer or a title company, is responsible for an accurate and proper closing. If there’s a mortgage involved, the lender has responsibilities as well. For example, the lender must make sure that the numbers on the good faith estimate match the numbers on the closing disclosure. The title agent must make sure the money is collected and the money is correctly dispersed and that all of the title insurance contingencies are cleared and the lender’s instructions are followed.
Cleared to close typically means that all of the contingencies in the lender’s loan instructions have been cleared by the closing agent. Normally, the closing agent receives the loan closing package with a large set of instructions. The transaction is cleared to close, and the money can be dispersed, when the closing agent performs all of the tasks listed on the instruction sheet and forwards confirmation to the lender. At that time, the lender will convey to the closing agent it has the authority to disburse the loan proceeds, which are wired to the trust account of the closing agent.
All parties will bring their driver’s licenses for identification purposes. The seller brings the seller documents along with the keys. He or she may also bring clickers, entry cards, mailbox keys, or any other ways needed to access the property. The buyer brings any money due.
In most standard real estate contracts, the contract is binding on the parties and their heirs or parties in interest, which means their estates will be obligated to fulfill the terms of the contract and close the transaction.
The title agent, whether it be a real estate lawyer or a title company, checks that the title contingencies have been satisfied so that the buyer is receiving marketable title to the property.
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You May Also Be Interested in These Popular Real Estate Closing Topics:
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- 3 Common Forms of Ownership of Florida Real Estate
- 3 Steps to Adding a Name to a Deed
- What Is Included In A Title Search Report In Florida?
- 9 Common Real Estate Contract Conditions
- 7 Things to Know About Real Estate Inspections
- Can You Sell or Refinance Your Home in Florida If You Have A Judgment Against You?
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