Do you know what your closing attorney needs you as an agent to provide for the upcoming closing? Maybe you’re not sure because it’s been a while since your last deal, or maybe you don’t have a systematic process and are open to suggestions.
Either way, we can help! We enjoy supporting real estate agents through the real estate closing process.
Read on to review important actions needed to protect your buyers. We have created this handy Closing Deliverables Checklist [PDF] for you to download and use on each of your deals!
The Full Explanatory Guide
1. Agent Commission Statements (from both agents)
We need a copy of your commission statement before closing. Agents are paid at closing on the settlement sheet, pursuant to the listing or representation agreement they have with the seller and/or buyer.
The commission statement does not create the obligation of payment — that comes from the previously-signed contact between the seller/buyer and the agent.
The purpose of the commission statement is to provide the written documentation/confirmation that the Settlement Agent (e.g. buyer’s attorney) needs in order to complete the Settlement Statement (e.g. Closing Disclosure or HUD-1) accurately.
But note, if the Buyer is responsible for the payment of any commissions at closing, please let the Settlement Agent know right away, so that this amount can be included on the Loan Estimates from the buyer’s lender! Failure to do so will cause the cash to close amount to unexpectedly “swing up” on the final balancing closing disclosure for the buyer.
2. Smoke Detector Certificate
State law requires that the seller provides the buyer at closing an inspection certificate from the local fire department showing that the property is in compliance with properly-located and properly-operating detectors. This is considered a safety statute, and most lenders require proof of compliance as a condition to closing.
There are very limited exceptions to this statutory requirement, and the most common misconception is that there are more exceptions than there really are. For example, the buyer agreeing to waive it isn’t an official exception. Nor is the fact that the buyer will be doing renovations!
We are seeing that many cities and towns have delays in scheduling this, and since they are valid for 4 months in RI and 2 months in MA, we recommend scheduling this in advance of closing to avoid last-minute issues. Read more about requirements for Massachusetts properties, including the official reference guide from the Mass. State Fire Marshall. Likewise, here is the official guide from the RI State Fire Marshall for Rhode Island properties.
3. Tenant Rental Information (if multi-family)
If any units will be occupied by tenants at the time of closing, the Settlement Agent needs to receive copies of any lease or rental agreement in effect, and/or written information with the tenant’s name(s), unit number, rental amount, rent due date, and security deposit amount.
The recommended best practice to protect both the seller and buyer is to have the tenant sign a “confirmation of rental terms” or “tenant estoppel certificate” so that the tenant has certified the accuracy of this information. The tenant would then be “estopped” from changing his or her position or disputing the accuracy of this information later. Don’t forget that in Rhode Island, the seller has to also give written notice of the sale to all tenants, per R.I. Gen. Laws § 34-18-23(a)(1).
You can download this PWG Residential Tenant Estoppel Form [fillable PDF], or we can adjust a custom one to fit your transaction.
4. Fuel Adjustment (if oil or propane)
The Purchase and Sale Agreement is for the sale of real estate (and fixtures/improvements permanently attached to the real estate), not personal property.
What about heating oil or propane? It’s technically personal property! But stop and think for a minute – does it make sense to risk running the tank empty, especially in the middle of the winter, and risk bursting a pipe, just to get your “money’s worth” out of the oil or propane? No! So most Purchase and Sale Agreements include a provision for the proration or adjustment at closing for fuel (heating oil or propane) remaining in the tank at the time of closing.
In other words, the buyer is purchasing this fuel (personal property) at the time of closing. This encourages sellers not to run the tank down to empty, because they’ll get paid back for the fuel remaining. There are two important takeaways for your closing:
- The seller should cancel any auto-delivery contracts he/she has, so that the seller’s company doesn’t accidentally fill it up after closing.
- The Settlement Agent will need, on the official letterhead from the fuel company, a certification of the fuel remaining in the tank (between 10 and 3 days before closing), and the current market rate for that fuel.
5. Water Meter Reading (if public water and/or sewer)
If the property is serviced by municipal water and/or sewer service (i.e. NOT a well and/or a septic system), a final reading of the water meter needs to be taken, so that a final bill can be processed and paid at closing by the seller.
(Special exception: in some towns, like North Smithfield, sewer billing is based on EDU-equivalents not on actual usage, and so these are flat annual amounts that are prorated at closing like taxes, with no final readings necessary).
Then, the account will be turned over to the buyer after closing. This is critical at closing, because the water and sewer providers are considered municipal or quasi-municipal services, so they will enforce payment by tax sale. That’s right — they don’t simply turn off the service — they auction off a deed to your house if you don’t pay!!!
We’ll be writing more about this archaic process soon. But here’s the takeaway: as the settlement agent, we make sure the seller’s bills have been paid in full at closing, so that the buyer doesn’t have to worry about losing the house for bills the seller didn’t pay.
Most cities/towns allow us to just submit the current reading (a couple, such as Woonsocket and East Providence prefer their own crews to verify the meter reading). To do this, we have the agent (or the seller) send us a legible photo of the water meter (usually located in the basement), and then we submit to the utility company the request to close out the account for you.
6. Condominium Resale Certificate
If the property is a condominium unit, a resale certificate from the condominium association is required. In Rhode Island, the condominium association must provide it within 10 days of the request, and the fee cannot exceed $125, per R.I. Gen. Laws §34-36.1-4.09, and in Massachusetts there is a similar requirement for the association to provide the certificate pursuant to Mass. Gen. Laws c.187 §6(d).
How does a buyer know that they won’t be stuck with a “super-priority lien” for the seller’s unpaid common expenses or special assessments? This is a lien that can take priority over other liens, like mortgages, and yes this is a real thing. The answer is the resale certificate! If it’s not on the certificate, the association is “estopped” from later asserting or attempting to collect it.
Practical Tip: we see that some condo associations will make the certificate valid for longer than a month if the condo fees have been paid in advance, which is helpful for closing scheduled at the end of the month.
7. MA Title V Septic Inspection Report
For Massachusetts properties serviced by an OWTS septic system, a Title V report is required for closing. This is an inspection report, conducted within 2 years before the closing, that shows the system is functioning properly.
It is generally the seller’s responsibility to arrange for this and to provide the report, but a buyer may also want to have his or her own inspector verify the system is functioning to the buyer’s satisfaction.
We’ll be writing a future article on “due diligence” items that a buyer should investigate for closing to protect him/herself from the rule of “caveat emptor,” but in terms of our topic of closing deliverables, remember that the official inspection report is needed to close.
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