This document provides information about real estate closings and the Real Estate Settlement Procedures Act (RESPA). It discusses how to calculate prorations for expenses like property taxes, defines key terms related to closings, and outlines the requirements and guidelines of RESPA, including required disclosures to buyers. It also includes sample questions to test understanding of closing processes and RESPA.

1. Real Estate Principles &
Practices
Module 6
February 2015

2. Chapter 9
Real Estate Closings
February 2015

3. Key Terms
• Abstract of Title
• Closing
• Location Survey
• Marketable Title
• Proration
• Real Estate
Settlement
Procedures Act
(RESPA)
• Settlement
Statement
• Survey
• Title Insurance
February 2015

4. Calculating Proration's
• Steps to calculate the adjustment are similar:
– Determine if the expense is accrued or prepaid
– Divide the expense by the appropriate period to find a
monthly/daily rate
– Determine how many months/days are affected by the
expense
– Multiply the monthly/daily rate by the number of
affected months/days
– Determine which party is credited and which is
debited
• Note: Seller always pays for day of closing!
cont.
February 2015

5. Real Estate Settlement and Procedures
Act (RESPA)
• A federal law dealing with real estate
closings that sets forth specific procedures
and guidelines for disclosure of settlement
costs
• Applies to most sales of one- to four-unit
residential properties where loan is
secured by a first mortgage on the
property
• Administered by HUD
February 2015

6. Real Estate Settlement and Procedures
Act (RESPA)
• Prohibits kickbacks and fees for services
not performed during the closing
• Limits the amount of escrow money
reserve lenders may require for taxes or
insurance
• Requires a HUD Special Information
Booklet explaining RESPA be given to
buyers
cont.
February 2015

7. Real Estate Settlement and
Procedures Act (RESPA)
• Requires a Good Faith Estimate (GFE) of
settlement costs be given to the buyer.
• Requires use of the HUD-1 Settlement
Statement.
• Gives buyer the right to inspect the HUD-1
Settlement Statement one day prior to closing.
• Requires brokers and lenders to disclose
multiple relationships without obligating parties
to use suggested referrals.
cont.
February 2015

8. Real Estate Settlement and
Procedures Act (RESPA)
• Borrowers applying for a mortgage loan
must receive the following disclosures at
the time of application or within three days
of the lender receiving their loan
application:
– HUD Special Information Booklet
– Mortgage Servicing Disclosure Statement
– Good Faith Estimate (GFE) of settlement
costs
cont.
February 2015

9. Items Not Listed on
Settlement Statements
• An item paid outside of closing (e.g., home
inspection fee, attorney fee)
• Escrow deposits lenders require buyers to
pay in order to cover future property
taxes/insurance are required to appear on
the Settlement Statement
February 2015

10. Chapter 9 Quiz
1.) What dictates the procedures that an
escrow agent follows to conduct escrow
closings?
a. procedures detailed in the sales contract or
escrow agreement
b. procedures outlined by the escrow company or
title company
c. real estate licensing laws
d. Real Estate Settlement Procedures Act
(RESPA)
February 2015

11. Chapter 9 Quiz
2.) Before funds can be disbursed, lenders
require that the
a. buyer acknowledge the note and mortgage.
b. buyer and seller obtain a title insurance
policy.
c. buyer have a termite inspection performed.
d. seller obtain a homeowners insurance policy.
February 2015

12. Chapter 9 Quiz
3.) Which does NOT show evidence of
marketable title?
a. abstract of title
b. certificate of title
c. location survey
d. title report
February 2015

13. Chapter 9 Quiz
4.) Which type of evidence of title gives a
homeowner or lender recourse if title
defects are later discovered?
a. abstract of title
b. attorney’s opinion
c. certificate of title
d. title insurance
February 2015

14. Chapter 9 Quiz
5.) Title insurance does NOT protect
policyholders from
a. a forged deed.
b. improper deeds.
c. mistakes in the public records.
d. an unrecorded lien that the buyer
knew about.
February 2015

15. Chapter 9 Quiz
6.) Which type of title insurance policy
will the lender hold?
a. mortgagee’s policy
b. mortgagor’s policy
c. owner’s policy
d. The lender cannot hold title insurance.
February 2015

16. Chapter 9 Quiz
7.) When determining the portion of a
prorated item that a party pays,
a. always charge the day of closing to the
buyer.
b. always charge the day of closing to the
seller.
c. find out who agreed to pay for the day of
closing.
d. split charges for the day of closing equally
between the buyer and seller.
February 2015

17. Chapter 9 Quiz
8.) Annual property taxes are $1,776. If
closing is on May 1, what is the seller’s
portion?
a. $588.76
b. $623.40
c. $628.60
d. $1,484.07
February 2015

18. Chapter 9 Quiz
9.) RESPA does NOT
a. apply to one- to six-family residences and condos.
b. prohibit kickbacks or limit the amount of escrow
reserves.
c. require the HUD Booklet and estimate of
settlement costs be given to the buyer.
d. require the use of the HUD-1 Settlement Statement
or give the buyer the right to inspect the Settlement
Statement at least one day prior to closing.
February 2015

19. Chapter 9 Quiz
10.) Which cost might NOT appear on a
Settlement Statement?
a. escrow company fees
b. lender fees
c. professional home inspection fee
d. title insurance fees
February 2015

20. Chapter 10
Real Estate Practice
February 2015

21. Key Terms
• Errors and Omissions (E&O)
Insurance Closing
• Farming an Area
• Multiple Listing Service (MLS)
• Net to Seller
• Sphere of Influence
February 2015

22. Making a Sale
• In addition to selling real estate, agents
need to “sell”:
– Themselves
– Their brokerage
– Their services
• Getting listings may require as much sales
ability as selling houses
February 2015

23. Getting Clients
• Sphere of influence—people an agent
knows
– Exposure
– Referrals
• Farming an area
– Name recognition
February 2015

24. Qualifying Clients
• Does the person have the authority to
make a decision (includes buyers and
sellers)?
• What price range?
• What services or features are important to
them?
• What do they expect from an agent?
• What do they want or need in a house?
February 2015

25. Qualifying Clients
• How many bedrooms do they want?
• Do they need a garage?
• What style house/building material do they
prefer?
• Is a certain school district important?
• Is public transportation a concern?
cont.
February 2015

26. Showing Properties
• Three areas in which agents need to
prepare:
– Buyer
– Seller
– Property
February 2015

27. Showing Properties-The Buyer
• Be familiar with the properties and be able
to answer questions about them
– Walk through the home prior to showing it to a
potential buyer
– Get information from listing agent
• Take scenic route when bringing potential
buyers to the property
– Introduces potential buyer to the
neighborhood
February 2015

28. Showing Properties-The Seller
• Be familiar with the property you are listing
• Listing agent may or may not be present
during each showing
– Depends on the wishes of the seller and
buyer’s agent
• Seller should not be present
• Agents should get buyers’ honest
assessment of the home to address
objections
February 2015

29. Showing Properties-The Property
• Show property in its best light
• Focus on property’s desirable features in each
room
• Mention potential buyers’ personal belongings
and how they may fit in the home
• Remove as much clutter as possible from each
room
• New paint, carpet, repairs, landscaping, de-
personalization may also help
February 2015

30. Types of Objections
• Invalid objections
• Valid objections that are answerable
• Valid objections that are not answerable
February 2015

31. Handling Objections
• Restate an objection before trying to
answer it
• Never make a big deal out of an objection
• Respond to objections by asking questions
• No property is perfect
• Use third parties to support answers to
objections, if possible
February 2015

32. Closing the Sale
• No right or wrong time to close
• Agent must take initiative and ask for the
sale
– After answering an important question
– After overcoming a key objection
– Ask early and often
• Watch for verbal and physical clues from
potential buyers
February 2015

33. Closing Techniques
• Point out benefits of moving in
– (e.g., shorter commute to work)
• Ask buyers questions about what they will do with the
new home
– (e.g., paint colors)
• Ask buyers no-lose questions
– (“Do you want to take possession in 30 or 60 days?”)
• Provide extra information buyers if they act now
– (“You could lock in a low mortgage interest rate if you sign
today.”)
February 2015

34. Signing the Offer
• Make buyers feel at ease when making an
offer/signing a contract
• Sit down with them and go through each
part of the document they are about to
sign:
– Helps buyer understand what she is signing
– Shows buyer the contract has clauses meant
to protect the buyer
– Impresses buyer with the agent’s knowledge
of the contract and real estate in general
February 2015

35. Accepting the Offer
• When discussing the offer with the seller:
– Listen to what the seller wants in the
transaction
– Discover the seller’s objectives
– Determine how long the property has been for
sale
– Be prepared to say why this is a good offer for
the seller to accept
February 2015

36. Real Estate Procedures
• Writing contracts and offers
– Exclusive right to sell listing agreement
(among other listing agreements)
– Real estate purchase contract
• Financing options
– Buydowns, ARMs, FHA/VA loans,
conventional, etc.
• Net to seller
February 2015

37. Other Aspects of
Real Estate Practice
• Multiple Listing Services (MLS)
• Changing government regulations
– Local, state, and federal
• Errors and omissions (E&O) insurance
– Does not cover fraud or transactions involving
the agent buying or selling his own real estate
February 2015

38. Chapter 10 Quiz
1.) Aaron is showing a house to the Joneses
and they ask him about the school district.
Aaron should tell them
a. he has no opinion.
b. he thinks the school district is great.
c. he thinks the school district is
unsatisfactory.
d. to talk to the superintendent of the school
district.
February 2015

39. Chapter 10 Quiz
2.) If an agent notices a crack in the wall while
showing a house to a potential buyer, what
is the agent legally required to do?
a. point out the crack as he walks past it
b. stand in front of it so the buyer cannot see it
c. take the buyers through a different room so
they do not walk past it
d. Unless the buyer asks, the agent is not required
to say anything since the crack is visible.
February 2015

40. Chapter 10 Quiz
3.) If a buyer has an objection to buying a
house, an agent should
a. ask questions to understand the objection and
answer it if he can.
b. dismiss the objection and point out the reasons
why the house is perfect for the buyer.
c. forget about the house and move on to another
because the buyer is not interested.
d. let the buyer talk to the seller about the
objection.
February 2015

41. Chapter 10 Quiz
4.) If the buyers are ready to sign an offer
but want to consult their lawyer first, the
agent should
a. have his broker go over the contract with the
buyers to make them feel more at ease.
b. stress that time is of the essence with this sale.
c. tell them normal procedure is for them to talk with
a lawyer after signing the offer.
d. tell them they should feel free to talk with their
lawyer first.
February 2015

42. Chapter 10 Quiz
5.) A net to seller is a(n)
a. declaration of how much the agent will
make in commission from the transaction.
b. estimate of the amount of money a seller
will receive from a transaction.
c. guarantee of the amount of money a seller
will receive from a transaction.
d. safety feature for the seller in case she
does not receive as much money as she
wants.
February 2015

43. Chapter 10 Quiz
6.) Which is NOT a purpose of the net to
seller form?
a. assures that the seller will accept the offer
b. gives the seller an estimate of money he
will receive from the transaction
c. lets the seller make an informed decision
about accepting a specific offer
d. prepares the seller as to what amount to
expect from the closing proceeds
February 2015

44. Chapter 10 Quiz
7.) Houses built before 1978 do NOT
require that
a. buyers be given the opportunity to conduct
their own lead paint inspections.
b. known lead paint hazards be disclosed to
buyers.
c. a lead paint booklet be given to buyers.
d. the seller mitigate all lead paint.
February 2015

45. Chapter 10 Quiz
8.) Errors and omissions insurance does
NOT cover
a. buying and selling someone else’s real
estate.
b. fraud.
c. mistakes.
d. negligence.
February 2015

46. End Module 6
February 2015