Closing on a home, whether newly built or existing, is essentially the same process: The appropriate documents are signed to transfer ownership of a property from the seller to the buyer.
But there are several key differences to closing on a new-construction home versus an existing one, particularly before your client actually gets to the closing table.
As a real estate professional, do you know the ins and outs of the closing process for newly built homes?
Prior to Closing
The closing date for a new-construction home is determined based on the home’s expected completion date. But construction delays can happen due to weather or materials, thus altering the closing date, so it’s up to you to help manage the expectations of your client through the construction process, particularly in those final weeks.
“Don’t forget your client,” says Sharon Voss, who has been a Realtor for 35 years and serves as president of the Orlando Regional Realtor Association. “Stay in touch with them because you need to know where things stand. And you should check [with the builder] yourself instead of waiting to hear from your client.”
One of the main differences between closing on a new-construction home and an existing home centers around the home inspection and any subsequent repairs.
“On a resale, there is a period for the buyer to do his or her investigations [inspection, appraisal, termites, etc.] and then most times, a round of negotiations between the buyers and seller for what will be repaired — and who will pay for it — prior to close,” says David Feldberg, the broker/owner of Coastal Real Estate Group in Newport Beach, Calif.
With a new-construction home, inspections have been conducted throughout the building process by both the builder and local inspection entities to ensure the home meets all code requirements. Once construction is completed, the builder will conduct a final walk-through and orientation with the buyer about a week or so out from closing.
This allows the buyer a chance to visually inspect the home, go through the builder’s punch list of any remaining touch-ups and point out any other repairs that may have been missed. The builder will also take the time to explain about the functions of the home (such as where the water cutoff is, etc.). Then, right before closing, the builder and buyer will confirm that those final fixes have been made and the buyer signs off on the work.
Voss recommends that agents accompany their clients to the final walk-through to serve as an extra set of eyes and to offer their expertise. “It is important for a real estate professional to ensure that the builder has met its obligations to the buyer,” she says. “In particular, that the buyer’s preferences in color, finishes, materials, etc. are correct.
“Most builders take great pride in their work and are very good to work with,” Voss adds. “They work hard to please their clients.”
Fees and Lenders
Another key difference relates to who pays what at the closing table.
“Many fees typically paid for by the seller at an existing-home closing are paid for by the buyer at a new-construction home closing,” Voss says.
Who the buyer chooses as their lender can affect the amount of fees; builders typically offer various incentives, such as paying all or a portion of closing costs, to buyers who go with their in-house lender, if available, or a preferred lender.
You should review the HUD-1 settlement statement with your client to compare the fees to those listed on the Good Faith Estimate that the lender provided.
“If there’s something you don’t understand, question it,” Voss says. It’s also important, adds Feldberg, to explain the breakdown of fees and other costs on the HUD form to your clients to make sure they know where their money is going.
And, as with existing-home transactions, a real estate professional involved in the sale of a new-construction home is typically paid at closing, according to Voss, or once the deed is recorded, depending on location.
An agent just needs to be sure to register the client with the builder during the first visit to ensure they receive proper compensation. “Some builders do opt to pay real estate professionals half of their commission at loan approval and the other half at closing,” she adds.
Checklist for Closing Day
As for the actual closing day, the specifics of the process — who handles the settlement (an attorney, a title company, etc.) and where the closing takes place (builder’s sales office, title company office, etc.) — may vary depending on the builder and the requirements for your area.
“The process is pretty similar to the sale of an older home in that at the close of escrow [when the home is completed], your client will sign the loan documents, pay the down payment [less earnest money deposit], and then a few days later when the new deed is recorded, get the keys,” Feldberg says.
When Voss is working with a new client, she usually provides them with a checklist of what to expect at closing, including an important reminder to bring a driver’s license or ID to the closing table. But, for newly built homes, she says, usually the builder provides the buyer a list of what is needed for closing. Where agents can help their clients is making sure those checklist items are taken care of.
“I treat closing a new-construction home just like a normal [resale] closing,” Voss says. “I attend the closing with my buyers. It’s important that you’re there to hold their hand.”