The Home Closing Process in the Era of COVID-19

How has the closing process changed and which changes are likely to stay? Let’s investigate this question and try to look into the crystal ball of completing home purchases in a socially distanced world.

Changes to the Closing Process

Here are the steps involved in a real estate closing and how they are different now versus before the COVID-19 pandemic. One caveat: this is very state-specific. I will be highlighting the situation in Illinois. Other states will be handling some of these steps in different ways.

Appraisals

If you have a property that is being financed, the appraisal is a crucial step in getting to closing and there could be major changes in how appraisals are conducted. The appraisal is the bank’s way of making sure the price that the buyer is paying aligns with the value of the home. Up until now, the vast majority of appraisals have been done in person with a full walkthrough of the home.

This is starting to change. With social distancing guidelines and safety in mind, drive-by appraisals have been occurring and there has been a push to allow “MLS Appraisals.” These are appraisals that are done purely by using data on a computer from a listing service. It is likely that the industry will go more towards this model in the future, especially for high rises. Appraising high-rise units with matching floor plans in the same building is a straight-forward process that usually does not require the appraiser to be there in person.

Documentation

Virtually all documentation is electronic now. I see this being the case going forward. It makes documents much easier to track and store, saves a lot of time and is far less costly than using paper. This has been the trend for a while and I expect the COVID-19 situation to accelerate it.

Further, there is more documentation that is showing up because of the COVID-19 situation. There are now COVID addenda being added to contracts along with special provisions for Recording Deeds to properties because the Recorder’s Office is closed. This requires the parties to have documents that protect their outcomes from the transaction.

Notary Services

With stay-at-home orders, one of the potentially tricky hoops to jump through is finding a Notary who can witness signatures. In Illinois, virtual notary is not authorized, so any party to a real estate transaction has to find one who is willing to do this service in person. Buyers and sellers would often go to a bank for this, but since the branches are closed, this makes it much trickier. In other states, there are provisions for virtual notary services and I expect this to be the norm in the future. Virtual notary is much more convenient and saves time.

The Actual Closing

In Illinois, attorneys represent the buyer and seller in almost every real estate transaction. Until now, it was customary at the very least for the attorneys, buyer, and closing agent to meet at the title company. Often the real estate agents and/or loan officer would attend the closing as well.

This is completely different now. For safety reasons, the title companies want as few people at the closing as possible, which usually means the buyer and the title agent are the only attendees. The attorneys will attend virtually by using video conferencing.

The way the transfer of keys happens is different, too. To avoid unnecessary contact, keys are often being left at the property in a lockbox for the owners, who receive the code after the closing has officially concluded. The “agent giving the keys to the buyers” photo op was really common up until now.

Overall Effect

The upshot of all these changes is that the closing process is likely to be a lot more efficient going forward. Documentation will be largely electronic, meetings will be virtual and available from anywhere and there will be a lower expectation for in-person activities. This ultimately saves a lot of time and hassle for the transaction participants. These changes have happened under unfortunate circumstances, but it looks like they could lead to some positive changes in the industry.