Closing

Key Takeaways

• Closing is the final step of a sale, when funds and signed documents are exchanged and title passes to the buyer.
• The neutral third party who handles the exchange may be called an escrow agent, a closing agent, or a settlement agent, and in Washington that party is normally licensed under the Escrow Agent Registration Act.
• Recording is a step after closing, and in Washington an instrument is treated as recorded the minute it is filed with the county.
• In Washington the real estate excise tax must be paid before the county auditor will accept the deed for recording.

What It Means

Closing is the final step of a real estate sale. The buyer's funds arrive, the deed and the loan documents are signed, prorated items such as property taxes and utilities are divided between the parties, and title passes to the buyer. Everything the purchase and sale agreement promised either happens here or the deal comes apart here.

The work is carried out by a neutral third party who takes written instructions from both sides and follows them literally. That party is called an Escrow agent, a closing agent, or a settlement agent depending on local custom, and course materials treat the three names as interchangeable. Neutrality is the point: the agent advocates for neither buyer nor seller and cannot take direction from one party alone.

Closing is also where the money is reconciled. Earnest money already on deposit is credited to the buyer rather than collected again, Closing Costs are allocated the way the contract says, the payoff on the seller's existing loan is wired out, and whatever remains goes to the seller.

How It Works in Washington

Closing custom varies by state more than almost any other step, so what follows describes Washington. Washington is an escrow state. The neutral third party is normally a company licensed under chapter 18.44 RCW, the Escrow Agent Registration Act. RCW 18.44.021 makes it unlawful to engage in business as an escrow agent without a license, with exemptions for banks and other financial institutions, Washington attorneys, title insurance companies, and real estate brokers handling escrows incidental to a sale when no separate compensation is received. That broker exemption is narrow, and charging a fee for the escrow work defeats it.

The escrow agent's paperwork duty is written into rule. WAC 208-680-540 requires a complete detailed settlement statement for each principal at the time the transaction is closed, original signatures of the principals on the preliminary or final statement, and copies of the final statement to each real estate broker involved.

Two Washington steps follow the signing. The real estate excise tax goes to the county treasurer, and RCW 82.45.090 bars the county auditor from accepting the instrument of sale for filing or recording until that tax is paid and verification is affixed. Then comes Recording, where RCW 65.08.070 provides that an unrecorded conveyance is void as against a later good faith purchaser for value whose conveyance is recorded first.

Example

Ray sells a house in Olympia to Nadia for $520,000, with closing set for Thursday, June 4. Nadia is putting 20 percent down and borrowing $416,000. Her $10,000 in earnest money is already sitting in the escrow trust account and is credited to her, so she wires $94,000 to escrow, which is her $104,000 down payment less the $10,000 credit, plus her share of the closing costs.

On the seller's side the escrow agent pays off Ray's remaining $288,400 loan balance, deducts the real estate excise tax and Ray's share of the commission and title charges, and wires him the balance. Nadia signs her note that morning, which is Consummation for federal disclosure purposes. The escrow agent presents the excise tax affidavit and payment to the Thurston County treasurer, and once verification is affixed the deed is filed for recording Friday morning. Nadia became obligated on Thursday and became the record owner on Friday.

Common Mistakes and Exam Traps

• Closing and recording are different steps. Title passes by delivery of the deed at closing, and recording is what protects that interest against later claims.
• Earnest money already on deposit is a credit to the buyer at closing, not an additional payment on top of the purchase price.
• The escrow agent is neutral and acts on written instructions signed by both parties, so neither side can redirect the funds alone.
• A Washington real estate broker who handles the escrow for a transaction and charges a separate fee for it loses the licensing exemption in RCW 18.44.021.