Step 8: Settlement
The final step of the “For Sale By Owner” (FSBO) process—and the only step in the process that FSBO sellers cannot complete by themselves—is the settlement. In certain parts of the United States, the settlement is referred to as the “closing” or “escrow.” All of these terms are synonymous and refer to the process in which a title search is conducted, reports and surveys are ordered, and paperwork is completed to finalize the real estate transaction. In order to facilitate the settlement process, both parties must meet with a settlement agent, which may be a real estate attorney, title company, or escrow agency. Nestseller recommends that FSBO sellers consider hiring a real estate attorney (note that some jurisdictions already require real estate attorneys to conduct the settlement process) to ensure that all documentation is complete and to ensure peace of mind during the settlement process.
The role of the settlement agent is to facilitate the settlement, ensure that the home is clear of liens and is eligible for sale (as discussed in the Premium Content of this section), file the settlement documentation with the appropriate government agencies, and provide all parties to the sales contract with copies of the settlement paperwork. The date of settlement may be subject to negotiation and typically occurs thirty to ninety days following acceptance of the sales contract. FSBO sellers should be aware that buyers have the legal right to select the settlement agent of their choice. The settlement agent does not represent either party to the sales contract; rather, the role of the settlement agent is to facilitate the transfer of home ownership and to coordinate the calculation and disclosure of all financial adjustments. All financial aspects of a residential real estate transaction are disclosed by the settlement agent using a three-page document prepared by the U.S. Department of Housing and Urban Development known as the HUD-1 form.
Both the seller and the buyer should expect to incur approximately 1-2% of the cost of the purchase price of the home in settlement service fees (closing costs) depending on state and local requirements (this amount may amount to 5-6% of the purchase price in high-tax areas). Although the HUD-1 form often consists of many fees and charges (each of which is discussed in the Premium content of this section), the role of the settlement attorney is to ensure that FSBO sellers understand all aspects of the settlement. Accordingly, prior to the date of settlement, FSBO sellers should take the following actions in order to ensure a smooth settlement:
- During the week leading up to the settlement, ask the settlement agent for the final HUD-1 statement in order to understand the fees and charges that will apply at settlement.
- Meet with the settlement agent to discuss each of the settlement-related fees and charges that appear on the HUD-1 form.
- Discuss all calculations and ensure that credits due from the buyer and other agreements between the parties are reflected in the statement.
- Review all fees, charges, and calculations to ensure that the HUD-1 form is free of errors.
- Ask the settlement agent for the preliminary title report to ensure that the home is free from liens and encumbrances.
- Ensure that all conditions of the sales contract have been met so that there are no unwanted surprises at settlement.
- Prior to signing any settlement documents, ensure that all information is correct, including the accuracy of all fees, charges, and credits to the FSBO seller.
FSBO sellers who are unable to attend the settlement in person have the option of appointing others to act on their behalf by executing a power of attorney form. For example, FSBO sellers who will be traveling out-of-state during the settlement can give a power of attorney to another person who will be able to attend settlement so that they do not need to break their plans to be present themselves. Nestseller recommends that FSBO sellers who are unable to attend settlement consider using the power of attorney services available at USLegalForms.com or RocketLawyer.com.
Step 8 Premium Content
• Understanding the HUD-1 Form
• How to Determine the Existence of Special Assessments, Encumbrances, Liens, and Other Title Matters