Confused about how the Ownership of Property Transfers from Seller to Buyer? Here is a High Level Overview of the Process.
I was discussing Real Estate with some friends of mine the other day and during that conversation there was some confusion as to the process that takes place when buying property. Many people may buy and sell properties once or twice in their lifetimes. Some may be buying a property for the first time. With this being the case, I understand how there may be a lack of understanding of the process to buy or sell property. Read on for a “High Level” overview of the process.
Here are some the key people/institutions involved in the process. I listed a brief description of their role in the process as well.
Buyer – purchasing the property. The buyer will have the deed to the property conveyed to him/her by the seller. The deed is filed at the courthouse in the county the property is located in.
Buyer’s Lending Institution – Will provide a Mortgage with the property utilized as security for the loan. The mortgage will be filed as a lien against the property at the courthouse in the county that the property is located in.
Seller – selling the property. The seller will convey the deed of the property to the buyer. Give up their right to the property.
Seller’s Lending Institution – The sellers lending institution will need to receive money to pay off the Seller’s Mortgage before the property can be sold. The Seller’s Lending Institution will record a Release of Mortgage notification to remove the mortgage lien against the property. This will be recorded at the county courthouse as well.
Escrow – This is a method of property transfer in which a neutral 3rd party is authorized to act as an Escrow/Closing Agent that will coordinate all the activities. Commonly referred to as “closing”. An Escrow Agent or Closing Agent is the name typically given to the person that is coordinating the closing. In the Peoria Illinois area, the company chosen to research the “Property Title” and provide Title Insurance is generally chosen as the Escrow Company and provides the Escrow agent.
Title Insurance Company Representative – Buyers want to make sure that they have clear ownership (Title) of the property and that no-one else is claiming ownership. Title insurance is offered by a Title company after they have searched the property records. Title insurance will be required by lenders as well.
Other people that may be at a “closing” for the property may include the following:
Real Estate Agents for the buyer and seller. A good real estate agent will be working as the agent for their client making sure all documents needed for the closing are actually there. They will be working on their client’s behalf to ensure the closing goes smoothly. Real Estate Agents don’t get paid until the “closing” is complete.
Attorneys for the buyer and/or seller. Since buying property is done infrequently for most people, it may be worth it to hire an attorney to make sure everything is in order.
The process to transfer property from seller to buyer is rather simple assuming all the documents are correct. The Escrow agent will coordinate all the activities, will let each representative know their responsibilities and the documents that need to be provided. There are numerous details that happen but at a “high level”, the main thing to know about the closing is that the seller will provide the deed conveying the property to the buyer. The buyer and buyer’s lender will provide the money to pay for the property. All documents and money go through the Escrow agent. The Escrow Agent is neutral third party with the responsibility of making sure the documents are in order and that the correct monies are being paid out to the correct parties.
The diagram included in this article outlines the main documents involved and the most likely flow of monies. The Escrow Agent will make sure the documents are signed appropriately and the money is paid to the appropriate parties.
My blog from last week discussed all these documents except for the Purchase and Sale Agreement in more detail and explained their importance. The Purchase and Sale Agreement is the document between the buyer and seller that outlines the terms of the agreement that was put in place when the buyer agreed to buy the property and the seller agreed to sell the property.
The Escrow Agent will allocate the monies to pay the “other” expenses associated with the sale of the property. One of the other expenses of selling a property is the “commission” paid to the Real Estate Agents involved with the sale of the property.
This is a High Level overview of the process. When buying or selling a property, your Real Estate Agent will help guide you through the process. Your attorney will also guide you through the process.