Understanding the Offer and Escrow Process

This is my personal outline to help you understand the key parts of the purchase process. It is not fully inclusive or sanctioned by our legal department, but it highlights critical steps.

Your Team

Making the Offer:

A strong offer contains the following elements:

1.      Purchase contract which includes all contract terms.

a.      Offer Price and any requested credits from seller

b.      Financial Information – how are you going to pay for the property? Loan or Cash offer

c.       Earnest money or initial deposit - typically 3% of purchase price and is refundable if cancelled within contract specifications

d.      Remaining amount being paid in cash (non-loan) funds

e.      Escrow Period:  the length of time you are in contract before you own the property. Typically, 30 days.

f.       Selection of Escrow and Title Company: Seller may have pre-opened escrow with a company, or we have several preferred companies as options.

g.       Contingencies:  The timeframe for Investigating the condition of the property, and the Appraisal and Loan, if applicable. (More info on this to follow.)

h.      Any other financial terms or requests – including Seller Rent Back periods and items to specifically be included or excluded (such as appliances).

2.      Pre-Approval Letter from your Lender

3.      Proof of Funds: copies of bank statement summary or letters from banker showing the funds being used for purchase and closing costs. We’ll black out the account numbers.

4.      Agency Disclosure Form:  outlines duties of the agents

5.      Agency Confirmation Form:  names the selling and listing agents

6.      Disclosures:  – Always review any available disclosures and reports prior to submitting an offer. Sometimes the seller has done inspections, repairs and have filled out the Seller Property Questionnaire and Transfer Disclosure Statement where the seller has a duty to disclose comprehensive information about the property. Seller may ask you to acknowledge these with the offer. Sellers most likely will not re-negotiate on any items that are disclosed up front.

Costs

There are various costs to be prepared for when purchasing a home.

a.      Closing costs for your loan:  Ask your lender for an estimate of closing costs. It is your lender’s responsibility to review these costs with you. For Cash offers, Title can provide an estimate of costs.

b.      Initial Deposit or Earnest Money:  Typically 3% of the purchase price. This is included in your total funds towards purchase. It is due to Title within 3 business days of an accepted contract. This is refundable if the escrow is cancelled within the contract timeframes, such as cancelling prior to lifting contingencies.

c.       Title and Escrow:  There are fees for recording, notary, title insurance and escrow service fees. These costs will be provided by the title company. They are not particularly large.

d.      Inspections: Buyer is responsible for payment for any inspections you do.

e.      Insurance: this can be paid out of escrow. Your lender will require you to have insurance in place prior to approving your loan.

f. Agent fees:  Buyer’s agent compensation may be paid by seller or buyer. This is agreed upon prior to or with your offer.  

Presenting the Offer:

In order to best represent you, I prefer to present your offer in person to the listing agent, and if possible, the seller as well. However, some sellers prefer that the offer is emailed to their agent.

Negotiation: The seller has 3 days (unless otherwise specified) to respond to your offer. They can “counter” on any of the terms. Whatever they don’t counter, stands from the original offer. You may accept or decline any part of a counter. You may counter back and forth unlimited times, until you come to a mutual agreement.

Offer Acceptance: Once there is a mutual acceptance of all the terms and you have signed a contract, you are “in escrow” or “in contract.” Once this happens:

a.      Day 1 of escrow is the day after you have an accepted offer. All days of the week including weekend and holidays count.

b.      You must provide your deposit WIRE or CHECK (No ACH) to the Escrow/Title Company to “open escrow.” You have 3 Business Days to deposit these funds. Checks are written to the Title Company who holds all funds throughout the escrow.

c.       My team will send you a timeline for the important dates for your escrow. Here is a sample:

2.      Contingency Phase:  Contingencies mean that the sale is “contingent” upon certain things happening. Standard contingencies are:

(1) investigations contingency for the buyer to do investigations to ensure that the property is satisfactory

(2) the appraisal and

(3) the loan being in place if there is one

More info on this to follow.

Here are key pieces of the Investigations Contingency phase:

 a. Disclosures:  The seller must disclose everything they personally know about the property and all that is available. You will receive an enormous amount of paperwork you will need to review and acknowledge. I am available to help you understand these papers.

b. Title Report:  The title company will conduct a preliminary title report to ensure that shows ownership of the parcel and to see if there are any “clouds” or issues with the title to the property and the seller’s ability to sell This includes liens, easements, etc.

c. Inspections/Investigations: In addition to the disclosures, you’re responsible for your own evaluation and inspections. We’ll discuss what inspections to do. I highly recommend you’re physically present for all inspections. I provide recommendations for resources, inspectors and schedule appointments to best accommodate you. Inspections at this stage paid for by the Buyer range from $250 - $1000 each.

1.  General Home Inspection:  evaluation of general condition of the house and identification of areas not “to code” or needing the follow up. Fees start at $500 and up, vary by size of property. Highly recommended.

2. Pest Inspection:  investigation for wood-destroying pests and organisms (such as molds and fungus). Fees start at $350 and up, vary by size of property. Highly recommended.

3. Septic:  if applicable, evaluating the septic system’s general condition, classification and any issues. Fees are approx. $1000 which includes pumping the tank. Highly recommended.

4. Well:  if applicable, water and well test. Fees are approx. $1,000. Highly recommended.

5. Sewer lateral for homes older than 15 years.

6. May also do Roof, HVAC, Plumbing, Electrical, Chimney/fireplace, Pool, etc. if needed.

7. Your own discovery:

a. Visit to the city or county offices to view all records and permits on file for the residence

b. Discussions to best understand property and surrounding area:  neighbors, local press, anyone who has performed major work on the property

d. Insurance: If you’re purchasing with a loan, your lender requires home insurance. Reach out to your agent as soon as you get into contract to get an estimate and avoid surprises. Having insurance in place is part of your Investigation Contingencies. It can be paid through escrow upon close.

            e. Natural Hazard Disclosure: You will get a Natural Hazards Disclosure (NHD) report, a third party report which is paid for by the seller. Spend some time to review. This report includes a ton of information about the area where the home is located. Items disclosed:

·       If property is in a natural hazard zone for flood, earthquake, wildfire, landslide, etc.

·       State, county, and city specific laws and advisories

·       The ability to develop or limitations

·       Special tax assessments and calculations available

·       Environmental screening

·       Radon gas

·       Airports

·       Any industrial hazard within a mile radius of the property.

6. Clearing Contingencies (Green/Yellow/Red light):  All information must be reviewed within the number of days specified in the purchase agreement.

The contract states the number of days you have to lift three main contingencies:  Investigations, Appraisal and Loan. These dates show on your timeline.

For each contingency, Buyers have the ability to:

a. Move forward: (Green light) You’ll lift contingencies and move forward with the contact as written. You can no longer negotiate on this condition of the property. An additional increased deposit may be required if you haven’t already deposited 3% with escrow.

b. Renegotiate: (Yellow light) Ask the seller for concessions: different terms, repairs, credits toward the sale or a price reduction; based on information revealed (i.e., inspections)

c. Cancel the contract: (Red light) Based on information uncovered or changes in the loan/refinancing.   Buyer recovers their deposits should they cancel the escrow prior to removing contingencies.

If Buyers do not clear contingencies within the contracted timeframe, the seller can give them a standard “2-day Notice to Perform.” If they do not clear the contingencies after given the notice to perform, the seller has the ability to cancel the contract.

Investigations: This includes anything you want to find out about the property through inspections, neighbors, local resources, contractor estimates. Once lifted, you can no longer negotiate on the condition of the property. It is up to you to decide you’re ready to lift this contingency though it does need to be done in accordance with the contract timeline.

Appraisal: Your lender will order the appraisal. This is done by a third-party licensed appraiser. If the appraisal comes in less than your purchase price, this may affect your loan approval. You can ask for a price reduction or you may need to bring more cash to the transaction.

Loan: This depends on your lender’s approval of your finances and the property.

7. Closing Stages:  Once Buyer clears all contingencies, the property is “pending”. There is little possibility of anything happening to alter the course of closing the sale. Sometimes, Sellers rent back after close of escrow. 

1.      Signing the papers:  This takes place 1-5 days prior to close. Your lender will “order docs.” Once this occurs, you will not be able to change your loan. Once the docs arrive, the title company schedules your signing of papers at their location or with a mobile notary that comes to you. The date for signing is driven by your lender and they will provide you with an “estimated closing statement” a day or two prior to signing. You will need to bring a cashier’s check or arrange for a wire for your estimated amount. You will pay:

a.      Balance of the down payment (subtracting deposits) – usually must be sent as a Wire. (ACH not accepted by title companies) Call Title company for wire instructions to avoid wire fraud.

b.      Closing costs (estimated 2-3%) You can request an estimate of these fees from title at any time.

2. Funding:  A day or two prior to close, the buyer’s lender will fund the loan.  This means that the financial transaction has occurred. Your loan is in place and the funds have been sent to title, who will in turn send to the seller after the close.

3.On Record: Once you have funded, the title company will record your ownership with the county - usually within 24 hours. Once this happens, you’re officially the owner and able to get the keys and access your new property unless a rent back period has been negotiated in the contract. We’ll let you know as soon as this happens.

Congratulations! Welcome to your new home!