The lender will work with escrow and the real estate broker to guarantee all conditions required to fund the loan occur timely. Other service companies involved in the process may include an appraiser, surveyor and building inspector. These service companies will be responsible for performing a detailed valuation and inspection of the structures. Reports will be issued and distributed to all parties prior to closing.
You should have a complete building inspection performed by a licensed building contractor or inspection service. A qualified contractor or inspector will give the building an overall structural inspection covering all major structural systems including the foundation, plumbing, electrical, roof and heating. Plan to accompany the inspector on the inspection to determine if problems exist.
A flat fee for escrow normally covers all services within the escrow umbrella, with the exception of title-insurance fees. Under normal circumstances, the escrow fees are divided evenly between the parties, though it may differ in certain areas of the country. Prior to executing the purchase agreement, the parties should agree how the fees will be paid.
Finalizing the Sale
After the contingencies of the purchase agreement have been waived, the buyer’s loan has been approved, and all repairs and inspections have been completed, funds to complete the transaction will be finalized. The division of shared expenses between buyer and seller, called “prorations,” will be computed. The buyer will sign closing documents and release any credits or monies owed to the seller. The seller will execute a deed transferring legal title to the new buyer. The deed will then be recorded with the county recorder, including mortgage documents. The buyer will receive a policy of title insurance guaranteeing the title to the property is valid and current. The seller will then receive the balance of funds necessary to complete the sale.
In the closing statement, a balance sheet is used, which reflects debits, credits and prorations. The parties are required to sign the closing statement, confirming the calculations are correct. While debits and credits are understandable, prorations tend to create disputes. Prorations apply to any charges that a party may have incurred prior to the sale of the property. Charges may include property taxes, insurance premiums, rents, maintenance charges and impound accounts. They are paid in advance by the seller or buyer, thus necessitating a credit.
The final closing of the transaction entails a punch list of items the escrow office needs to complete and file. They include:
- The final escrow closing instructions signed by buyer and seller
- Signed loan documents
- A certified check or wired funds from the buyer for the full balance of the purchase price
- A signed and acknowledged grant deed and, when applicable, an executed bill of sale
- Instructions from buyer and seller to record the deeds on a specific date
When the closing officer has completed all documentation, the document packet is filed and recorded with county recorder’s office. When a document is recorded, the public is assumed to have knowledge of its existence. Constructive notice has now been given. Title represents ownership of property, and the deed is the instrument used to transfer title between the parties.
Recording the deed is essential for the buyer and the lender. In most cases, the recorded instrument carries legal preference over any unrecorded instrument. The time of recording is considered the close of escrow—the day, hour and minute when the property legally and rightfully changes hands.
Each county recorder has definitive times when documents can be recorded. A county with a heavy workload generally requires closing agents to record early in the morning to be sure the posting of all the documents is completed by close of business. Closing agents prefer to record at the earliest possible time of the day.
After the documents have been recorded, the escrow officer will release the monies that have been held in the escrow account. This involves paying the seller, the holders of old loans, the real estate agents, etc. The deal is now complete, and the buyer can take possession of the asset.
While it can be a long and tedious process, understanding the steps involved in closing a self-storage real estate transaction will help you stay clear of pitfalls and ensure a smoother process.
Stephen Grossman is a senior vice president with NAI Capital’s National Self Storage Investment Group in Newport Beach, Calif., which specializes in self-storage brokerage. He has been responsible for the sale of more than 900,000 buildable square feet of entitled self-storage land, and the sale or escrow of more than 3.5 million square feet of existing self-storage facilities. For more information, call 949.468.2394; visit firstname.lastname@example.org.