Real Estate Salesperson · Financing and settlement · 8 min read
Closing Procedures, Prorations and Disbursement
- Differentiate between table closings and escrow closings, and explain the roles of the settlement agent, title professionals, and supervising brokers.
- Calculate settlement statement entries by properly categorizing debits, credits, accrued expenses, and prepaid items for buyers and sellers.
- Explain the compliance requirements under the TILA-RESPA Integrated Disclosure rule, including Closing Disclosure timing, consummation, loan funding, recording, and post-closing disbursement.
Closing Formats and Professional Roles
Closing, which is also commonly referred to as settlement, is the final stage of a real estate transaction. During this critical event, title to the real property formally transfers from the seller to the buyer, and the agreed consideration is exchanged. Depending on local custom and applicable state law, settlement may be conducted by an attorney, an escrow agent, or a title company officer. State practices vary widely regarding which professionals are authorized or customary to lead the closing, meaning real estate practitioners must always understand the accepted procedures in their specific jurisdiction.
Transactions generally close through one of two primary formats: a table closing or an escrow closing. In a table closing, the buyer, the seller, their respective representatives, and the settlement agent typically gather in person around a conference table to execute documents, review closing figures, and exchange funds simultaneously. Conversely, in an escrow closing, the parties do not necessarily meet face to face. Instead, a neutral third party holds funds and documents and completes the transfer when the applicable escrow instructions permit it, including when required conditions have been satisfied or waived.
An escrow agent serves as an impartial, neutral holder of documents and funds. The specific duties owed by an escrow agent to the transaction parties are strictly governed by the written escrow instructions and applicable state law. Meanwhile, a real estate salesperson acts under the direct authority of their supervising broker to assist clients in tracking and satisfying all pre-closing contingencies. When a party cannot attend closing in person, an authorized representative may sign on their behalf under a power of attorney. Authority to sign closing documents under a power of attorney generally must be in writing. In addition, recording requirements for powers of attorney vary by state and may also depend on specific lender and title company requirements.
Common mistakes
- Treating tenant security deposits as prorated rental income rather than transferring or crediting them in full to the buyer subject to lawful deductions and state law requirements.
- Assuming that a preliminary title search guarantees marketable title, when in fact it only examines public records, with title policy issuance governed by the requirements in a title commitment.
- Confusing loan consummation with closing, forgetting that consummation specifically occurs when the borrower becomes legally obligated to the lender under the credit agreement (typically at note signing).
- Believing that any change to a Closing Disclosure restarts the three-business-day waiting period, when only three specific triggers require a new waiting period: an APR change beyond tolerance, a change in loan product, or the addition of a prepayment penalty.
Key points
- Closing (or settlement) is the final stage of a transaction where title transfers and consideration is exchanged, conducted either as a table closing or an escrow closing by an attorney, escrow agent, or title officer depending on state practice.
- Real estate salespersons work under the authority of their supervising broker to assist clients with contingencies; commissions generally flow through that broker, subject to state law governing any authorized direct payments.
- Title searches examine public records but do not guarantee marketable title; when title insurance is obtained, a title commitment states policy requirements and exceptions, while a date-down search checks for intervening recorded matters through its effective date.
- On settlement statements, debits represent amounts owed or charges, while credits represent amounts received or already paid; accrued expenses are debited to the seller and credited to the buyer, whereas prepaid items are credited to the seller and debited to the buyer.
- Under TRID, borrowers must receive the Closing Disclosure at least three business days before consummation, with a new waiting period required only if the APR exceeds tolerances, the loan product changes, or a prepayment penalty is added.
- Disbursement occurs when the settlement agent distributes funds according to instructions and law, recording provides constructive notice under state lien priority rules, and sales are generally reported to the IRS on Form 1099-S.
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