Escrow Inspections and Appraisals
To BuyChoosing A
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The Process, Step-by-Step
The Initial Agreement and Deposit.
An effective agreement is a legal arrangement between a potential purchaser and the property’s seller.
Some important tips to keep in mind to streamline the process:
- Keep written records or digital copies of everything. For the sake of clarity, it will be extremely useful to transcribe all verbal agreements including counter-offers and addendums and to convert them into written agreements to be signed by both parties. We will assist you in drafting all the paperwork for your purchase and make sure that you have copies of everything.
- Stick to the schedule. Now that you have chosen your offer, you and the seller will be given a timeline to mark every stage in the process of closing the real estate contract. Meeting the requirements (contingency time-frames) on time ensures a smoother flow of negotiations so that each party involved is not in breach of their agreements. During the process we will keep you constantly updated, so you will always be prepared for the next step.
Summary of What to Expect during the Buyer’s Escrow Process
The Escrow Process for a Buyer has many steps and typically lasts 30 days. The escrow steps outlined below are a general overview on a customary experience for a home Buyer in the state of California. The information below focuses on solely the Buyer’s escrow process experience. Along with the information on this page, a Buyer should always look to their Realtor for guidance throughout the entire escrow process from start to finish working as a great team together to successfully close the escrow.
ESCROW OPENS: Once purchase contract terms between Buyer and Seller are fully negotiated and agreed upon by all parties, the contract commonly referred to as Residential Purchase Agreement (RPA) is considered to be fully executed and that final day of negotiations/acceptance starts the escrow process as day zero. The escrow and title company contractually agreed upon to handle the transaction is contacted by your Realtor and escrow is officially opened that day, or the next business day morning if final negotiations went late into the evening, weekend or on a holiday.
EARNEST MONEY DEPOSIT: Buyer is required to drop off a personal check or wire their earnest money deposit (EMD) commonly referred to as the Buyers Initial Deposit to the escrow company within 3 business days after offer acceptance. An EMD can typically be between 1%-3% of the purchase offer price depending what is customary for your area and price range and the amount would be indicated on page one of the purchase contract.
DISCLOSURES: Buyer will receive all the Seller disclosures and county reports for review within 7 days of contractual acceptance per the contract, unless otherwise negotiated. This includes a Natural Hazard Disclosure Report and all local and state disclosures.
INSPECTIONS: Buyer has 17 days from acceptance, unless otherwise negotiated, to complete and review all Buyer inspections, reports, disclosures, and also to get Buyer’s home owner’s insurance in place. This is known as the buyers due diligence period or Buyer investigations. Typically a Whole House Physical Home Inspection, and if elected a Termite Inspection will be performed. If the home has a pool, a pool inspection should be performed as well. Inspecting a home could be the single-most important process in buying a new home, as it ensures that the house is safe, secure, and problem free. Many other inspections are available to a Buyer including Roof, Foundation, Septic, HVAC, Plumbing and Electrical when recommended by the Home Inspector for further evaluations. If the property is under a home owners association there will also be a set of HOA documents ordered by escrow and typically paid for by the seller to be sent to buyer for their review. The HOA docs will contain financials, budgets, recent meeting minutes, rules and regulations, CC&RS etc.
APPRAISAL: Buyer’s lender will be in charge of ordering the appraisal who is a third party not a member of the lending institution, and the appraisal is part of the Buyer’s closing costs. This is normally an “up front” fee so Buyer’s need to expect to pay this out-of-pocket during escrow (typically by a credit card charge) early in the escrow and the appraisal will be completed within the 17-day appraisal contingency escrow period, unless otherwise negotiated. By day 17 the appraisal should be back with the lender and ready for full loan approval at that time which is due by day 21. Day 21 is the final contingency – Loan Contingency, unless otherwise negotiated. See below Loan Process.
REPAIR REQUEST: Once all inspections are completed within Buyer’s 17-day inspection period or shorter/longer if agreed to in the contract, the Buyer may write up a formal ‘repair request’ for any health and safety issues that were found, or for item(s) not functioning properly. The Buyer’s Realtor will go over those kinds of things with the Buyer before submitting the request in writing. Buyers would normally write this request nearing the end of Buyer’s inspection period, or recommended sooner. Seller has every right to accept or deny any repair requests made by the Buyer as all homes are sold as-is in it’s present condition at the time the offer was made. On the flip side, the Buyer also has every right to cancel the escrow and take their earnest money deposit in full if the Buyer is not pleased with the condition of the home and the seller isn’t willing to take care of a repair(s) that concerns the Buyer.
DAY 17 – REMOVAL OF BUYER INSPECTIONS AND APPRAISAL CONTINGENCIES: Once the Buyers has read all the disclosures, county title reports, and seen the results of all the inspections elected, and the Buyer is satisfied with the condition of the property and the Buyer is happy with the Seller’s response to the repair request, the Buyer will release all Buyer contingencies in writing (except for the loan contingency which is due day 21). Moving forward from here, the only contingencies remaining will be the loan contingency.
LOAN PROCESS; FINAL APPROVAL: Buyer has 21 days from contractual acceptance to get full and final approval with Buyer’s lender of choice according to the terms of the purchase contract. The Buyer should always remember that anytime the lender requests anything from the Buyer throughout the escrow process, always supply immediately to avoid any delays. The escrow process and closing escrow on time depends heavily on the Buyer’s final loan approval process.
DAY 21 – FINAL LOAN CONTINGENCY REMOVED: Once the Buyer’s loan has been fully approved, Buyer will “release” the final loan contingency in writing at day 21. With all contingencies now removed, the escrow is officially on the “home stretch.” NOTE: Because all the Buyer’s contingencies will be removed from this point on, if a Buyer tries cancelling the contract after this point for any reason at all, the Buyer can no longer take their earnest money deposit with them. Seller has the right to keep the EMD as recourse if they desire.
SIGN FINAL ESCROW/LOAN DOCUMENTS: At this time, Buyer’s lender orders the final Loan Docs package and once the package is received at the Escrow Company, the Escrow Company/Notary will make an appointment with the Buyer(s) to get all final paperwork signed at the Escrow Company or via mobile notary- usually around 3-4 days before the close of escrow date. Sometimes a lender can “table fund” which in that case a Buyer can sign papers as late as the same day as close of escrow date. All depends on the Buyer’s lender and their procedures.
FINAL CASH DOWN PAYMENT AND CLOSING COSTS: Buyer will need to get the remainder of their down payment which includes any closing costs to the Escrow Company via wire transfer within 24-72 hours of scheduled closing date of escrow. Buyers need to discuss wire transfer specifics directly with the escrow officer. Escrow officer will have that exact amount for the Buyer when Buyer signs all final escrow paperwork. Escrow will contact you with this info. NOTE: Wire transfer fraud is on the rise please call the closing agent at a verified phone number immediately to confirm the information prior to sending the funds.
FINAL WALK THRU: Within 5 days of close of escrow, Buyers will do a final walk thru of the property to make sure home is in relatively the same condition as the first time Buyer first saw it, plus to make sure all repairs have been completed that were, agreed upon, if any. Around this time, Buyer should start calling the utility companies (electric and gas, water, trash, cable/internet) to put those accounts into Buyer’s name on close of escrow date.
ESCROW CLOSES: Escrow is officially closed when the county “records” the property into the Buyer’s name. The Buyer’s Agent will let the Buyer know when it’s official. Buyer will normally take possession of the property at 6:00pm the day the property closes escrow. However, Buyer should always check with their Realtor well ahead of time on what day/time Buyer is allowed they keys. The standard contractual time frame is 6pm on the day of close of escrow Buyer can take possession; however, sometimes those terms are negotiated differently in the contract, so Buyer should always double check with Realtor on when the Buyer can actually have the right to take possession.
The Closing Agent. Either a title company or an attorney (outside California) will be selected as a closing agent. The closing agent will hold the deposit in escrow and will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances by the date of closing and that all new encumbrances are properly added to the title. Some properties are subject to restrictions which limit various activities such as building or parking restrictions. There may be recorded easements and encroachments, which limit the rights to use your property.
How to Hold Title. You may wish to consult an attorney or tax advisor on the best way to hold title. Different methods of holding title have different legal, estate and tax implications, especially when selling or upon death of the title holder. Title in real estate refers to the actual ownership and rights that a person or persons has to a property. It is the actual legal ownership of the property, while a deed is a document that serves as a record of that ownership. The deed is not the actual ownership of the property. Consulting a title vesting chart can add additional information for California’s regulations.
Common ways to hold title on your California home: Community Property; Community Property with Right of Survivorship; Joint Tenancy; Tenancy in Common; Separate Property; Trustee of a Trust; and other options available.
Inspections. Once your offer is accepted by the seller, you will need to have a licensed property inspector inspect the property within the time frame that was agreed upon in the effective contract to purchase. You may elect to have different inspectors inspect the property, if you wish to obtain professional opinions from inspectors who specialize in a specific area (eg. roof, HVAC, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution. We can recommend several different inspectors.
Depending on the outcome of these inspections, one of two things may happen:
1. Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the close, or
2. The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract (usually a credit in lieu of repairs made or price reduction).
Appraisal and Lending. It is imperative that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution, via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
Homeowners Association Approval. Commonly known as HOA docs. If the property that you are purchasing is conditional upon an association approval, request the rules, regulations, and other important documents from the seller as soon as you have an effective agreement to purchase. Make sure that the application documents and processing fees are submitted to the appropriate person at the association by the required time. Fill out all of the information completely and legibly so there is no delay in processing the application. If you are required to meet with the association for your approval, make an appointment as soon as possible for the interview. Most associations require a certificate of approval before move-in. Your closing agent will request that the original copy of this approval letter be brought to the closing, so that it can be recorded with the deed in the county public records.
Property Insurance. If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. Persons over 55 years of age or long-term customers, military persons may also be offered discounts.
We will be happy to recommend experienced knowledgeable insurance agents for every property type. Contact us today!