Every real estate transaction starts of with the negotiation of the contract. This includes way more than just the selling price that the parties have agreed to, but also includes dozens of other related issues:
• Mortgage contingencies
• Timing of the escrow process
• Rent backs after close
• Other sales or purchases being completed
• Etc., etc.
Everything we’re talking about here in this article is negotiable, and may be different depending on what is negotiated in your purchase agreement by the time it is signed off. Also, references made to the contract for purchase of your home are assuming the use of the California Association of Realtors Residential Purchase Agreement (CAR RPA). Once you’ve negotiated the deal and both parties have fully executed the purchase agreement, your real estate agent will provide the contract in its entirety, including counter offers and addendum to the chosen escrow company so that “escrow” may be “opened”.
It is important to realize that there’s a difference between opening escrow and acceptance of the contract. “Acceptance” is based on the date of the final signature, which completes the execution of the contract. All of the dates that are negotiated in the contract regarding time periods are actually based on the acceptance date, not the date that escrow is opened.
Once escrow receives the signed purchase agreement they will contact either the buyer’s agent or the buyer directly to receive the buyer’s good faith deposit money (usually, but not always, 3% of the agreed upon purchase price). In general, the buyer has three business days from “acceptance” to get their good faith deposit to the escrow company.
The next thing that needs attention is the timing of the inspection, which is based on whatever has been negotiated. The boilerplate time period used in the contract is 17 calendar days from acceptance; however, it is not unusual for a seller to have negotiated this to a shorter period of time. If the final day agreed to falls on the weekend or a national holiday, it will roll to the next business day. During the inspection time period, the buyer is responsible for completion of all their due diligence for inspecting the property, surroundings, and any condition that may impact their ownership, value and living condition. This includes, but is not limited to: the sex offender database, any noise concerns, school concerns, property line concerns, homeowner association, etc., etc. Typically, buyers hire:
• professional home inspector
• chimney inspector
• sewer line video inspector
• mold inspector
It is common, that if concerns are found, specialists are hired, such as a roofer, plumber, hvac professional, or whoever or whatever the buyer feels they need in order to investigate the home.
The seller has 7 calendar days (unless re-negotiated) to provide the buyer with all of the local, state, and federal disclosures, and any reports or relevant information they are in possession of, or responsible for. Of course, it is the buyer’s obligation to review those disclosures and reports, and if they have questions about them, then ask for further explanation from the appropriate source.
After the buyer has conducted their inspections and reviewed the seller’s disclosures, this is potentially another negotiation period. Depending on what information the buyer has discovered about the property, there may be some unknown factors that they uncover which cause them to go back to the seller for repair, credit, or price reduction in order to address those issues. Timing is important to pay attention to, as the buyer is supposed to be able to remove the inspection contingency on the final day, and all negotiation should be wrapped up by then.
If the buyer is getting a loan, there may be a Loan and an Appraisal contingency. Both contingencies are negotiated before you have acceptance of the contract, so those items should be spelled out. Because everything is negotiable, there is a possibility to have one without the other and to also have certain nuances built into the contingencies. The boilerplate time period in the C.A.R. contract is 21 calendar days for the loan and 17 calendar days for the appraisal. Under certain market conditions, the appraised value of the property may be less than the agreed upon purchase price. This may be a cause for renegotiation, or cancellation.
There’s actually an escrow company involved in escrow, with an escrow officer. Basically, the role of escrow is to act as a neutral third party in the coordination and closing of the transaction. They will coordinate with title, the lender, any lien holders, the buyers and sellers, and the real estate agents or brokerages. They are going to take in information from you regarding even things such as a statement of personal information to make sure that you are the Bob Smith that lives in Los Angeles versus the Bob Smith that lives in Philadelphia. If the buyer is receiving a loan, the escrow company will coordinate with the lender to meet certain conditions and provide loan documents for signature and return. They will be responsible for obtaining the signed grant deed from the seller and providing it to the title company. Once all of the funds have been received to close the transaction, they will schedule the “Recording” of the documents with the County Recorder. After recording, they will also be the company that balances the file, distributes all the funds, and closes out the transaction. By the way – make sure your keep your Final Closing Statement easily accessible for tax purposes.
While all of this is going on, you also need to make sure that the government required retrofitting is done for your municipality or local area, and the state. The city of LA has different requirements from Beverly Hills, Burbank, Santa Monica, and so on. Each is applicable to what city your home is being sold in. For instance, the state of California requires that homes meet certain guidelines with smoke detectors, carbon monoxide detectors, and earthquake-strapped water heaters. Those are our state guidelines, but again, you’ll want to check the municipality in which your home is located for additional, specific items that need to be taken care of prior to closing escrow.
Approximately 10 days prior to the close of escrow, if the buyer is obtaining a loan, they should probably be signing their loan docs and making any preparations necessary to deliver their down payment and closing costs. Next, you have the Final Walk Through, usually five days or less prior to the close of escrow. This is where the buyer visits the property and makes sure that it is in substantially the same condition as when they purchased it. They also make sure that any government required retrofits, and any negotiated repairs have been completed. It’s their check-up to make sure that everything is done and that the house still looks basically the same. Of note: the seller’s personal property may still be in the residence, depending on when possession of the home will be delivered.
Funding takes place the day before you actually close. Usually, the buyer’s down payment and closing funds arrive and then the funds from the buyer’s loan arrive. Depending on how the buyer’s funds for down payment and closing costs are brought into escrow, they may be required a couple of days prior to closing. Once the escrow and title companies have verified that all funds necessary to close the transaction are deposited, they will schedule recording for the following day. Upon receiving “confirmation of recording” with the county recorder’s office, you have a close of escrow and you have completed your sales transaction. Congratulations to the seller for selling and the buyer for the purchase of their new home!