The long-awaited spring is here and business is improving after a pretty slow start. In addition to market challenges, we are all finding out that learning a new way of doing business in a webinar (i.e. the new contract and how commission is charged) is a lot different than actually writing contracts and doing closing statements in the real world. We’re still on the left side of the learning curve, but we’ll get there.
On top of everything, a number of questions and some confusion has come our way regarding the definition of closing and how to determine when a deal is closed. Sounds like an easy question to answer, but sometimes things that should be easy are made more difficult because the rush to close a last minute deal or the emotions of the parties shifts the focus away from getting that critical answer (our custom and practice of split closings doesn’t help either).
Over the years, I have found that most answers to closing and contract questions can be found…..wait for it…..by looking at the language in the sales contract (I know, it’s a revelation). The terms of the contract do much more than determine the sale price and a closing date. The contract provisions are also instructions on how closing is to be conducted and where. Closing is defined in the contract as well: “The closing is the exchange of the deed for the total purchase price.” This has been in the contract for many, many years as the definition of closing. It means that when all the documents have been signed, all the contingencies in the contract are satisfied or waived, and the money changes hands the deal is closed and the buyer is entitled to possession. However, there has been some controversy, especially on split closings, because almost all sellers want a wire transfer for their proceeds today as opposed to a check. Some sellers over the last 8-9 years have taken the position that the deal is not closed until their proceeds are received by their bank. As a result, this has caused some disputes over when a buyer is entitled to possession. So, in the very common scenario where each party is closing at a different title company, how do you know when the deal is really closed? Again, we need to look to the contract. The custom and practice on handling a split closing in St. Louis and surrounding counties has been the same for decades. The buyer’s title company wires the seller’s proceeds and the seller’s title company’s fees to the seller’s title company after all the documents have been signed and approval from the buyer’s mortgage lender, if required, is obtained. So, how do we find out when the deal closes? Paragraph 5 in the Residential Sale Contract isn’t titled “CLOSING AND POSSESSION” for nothing. It tells us what we need to know. Line 75-76 define Closing as I stated above and further states, “Seller shall be deemed to have received funds when funds are received by Seller or Seller’s title company.” So, when there is a split closing, the contract instructs us that when the seller’s title company receives the wire from the buyer’s title company, the deal is closed and the buyer is entitled to possession unless the buyer and seller have made another agreement regarding possession.
The expectation of buyers and sellers is that all of us know what the sales contract says. It really pays to educate ourselves on how to conduct business as well as how to get business.
Well, there you have it. Hope all of you have a wonderful spring and summer and thanks for subscribing and reading! By the way, no AI was harmed in the writing of this article. Best of luck out there!