• Stuart Shefter

Settlement vs. Closing

There's an important distinction between two closely-related, but separate terms: Settlement and Closing. Prior to becoming an agent, I would hear and use these words interchangeably. That's a mistake. Plenty of agents continue to use them interchangeably (and I admittedly slip up on occasion). Here's the real difference between Settlement and Closing, and why that difference is so important.


The Difference between Settlement and Closing

Let's get to it in my favorite format, bullet points:

  • Settlement: When everyone signs the loan documents and deed.

  • Closing: When the deed is recorded with the Register of Deeds.


Now for a little more detail.


Settlement

Settlement is often what people mean when they say "closing" or "the closing table." The buyers, their agent, and the closing attorney all meet to walk through the Closing Disclosure, Loan Contract, and Deed. The closing attorney leads the conversation and takes everything line-by-line. Once everything is signed, the buyers receive their copy, which is a fairly hefty pack of paperwork.


It feels like this is the final step in the process because it's the last active step for homebuyers. But the closing attorney still has one more task.


That leads us to Closing.


Closing

Closing is when the attorney records everything with the county's Register of Deeds. Legally speaking, possession of the home does not occur until the deed is recorded. This is important because the new owners aren't entitled to keys (and garage door openers, etc.) until that time. So make sure to schedule those movers for the next day!


Fortunately for us, every county in North Carolina accepts electronic recording. Electronic recording is significantly faster than in-person recording, typically only taking an hour or two.


This is why I prefer to schedule Settlement for the morning or early afternoon. Those times are early enough to give us some buffer, ensuring everything closes that day.


Why it Matters

Why the distinction? Why are we splitting hairs with these terms? Glad you asked.


Legally speaking, the seller still owns the property until the deed is recorded, that means closing. If settlement is scheduled for the afternoon, the deed might not record by end-of-business. This means the seller is still the owner, and liable for anything that happens on the property until it is recorded the following morning.


Now what if it's a Friday afternoon? The seller would be liable for anything that happened over the entire weekend!


Every real estate office has a story about how this little detail caused undue stress because someone didn't factor in enough time between settlement and closing.


My personal favorite is from a settlement on a Friday afternoon. The Register of Deeds happened to end work early that Friday to celebrate a co-worker's retirement. That Friday was also before Labor Day, and everything was pushed back to the following Tuesday. The buyers had to reschedule the movers, change start dates for utilities, and cancel painters. The sellers decided to purchase a supplemental insurance policy in case anything disastrous happened over the weekend (fortunately, nothing did).


Using the Right Terms

Being specific matters. Especially in real estate, when one small detail can make a huge difference. I am as specific as possible with my clients. That means we need to be on the same page with our vocabulary. In casual conversation, it might not matter much, but in real estate, when your new house is on the line, one small word can make all the difference.

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