The California Escrow Process

The California Escrow Process

Maybe you’re reading this because you’ve just made an offer on your dream home in the South Bay. If so, congrats! Or perhaps you’re thinking of selling your place and want to know more about how that works. Buying a house can be a complex process for which most people are generally unprepared. One of those mysterious elements is escrow – also known as closing – which occurs between the time the seller accepts the offer and the buyer gets the keys. So, what happens in between? How long does the whole process take? The buyer and seller agree to an escrow timeline during contract negotiations, and each sale varies, but normally escrow takes around 30 to 60 days to close. This article will provide you with a general guideline so you can get familiar with the whole process.

Step 1: Escrow Begins

Once an offer to buy the property has been accepted and a purchase agreement contract has been signed by both the buyer and the seller, escrow begins. From here, an escrow company takes over and acts as a neutral third party to the transaction. The company impartially oversees the escrow process, making sure all conditions of the sale are properly met by each party. They handle tasks like ordering the preliminary title report, prorating taxes, and receiving, holding, and dispersing funds, etc.

Step 2: Initial Deposit

Before the transaction can go any further, a fraction of the down payment (referred to as an earnest money deposit) must be placed into the escrow account by the buyers.  This ensures the buyers put some skin in the game, to show their seriousness about the purchase. During this time, the escrow officer will also send specific escrow documents. Typically, the seller will receive a package including the grant deed to notarize, escrow instructions to sign, commission instructions, tax forms, statement of information, and payout documentation. The seller must get these documents back to escrow in a timely manner for escrow, title, and the lender to proceed.

Step 3: Disclosures and Inspections

During this time period, the buyers perform their due diligence and investigations on the property, and the home must be available for the buyers to do so. Typically, within the first 7 days of escrow, the seller fills out and signs various disclosures about the house or property as mandated by state law. Check out a list of California’s home selling disclosures. The disclosures provide information on known problems or defects for the area and property, as well as improvements, repairs, and environmental hazards. Certain cities in the South Bay, such as Hermosa Beach, also require a city report, which can take up to 2 weeks to process. Once these are complete, they are sent to the buyer to review and sign off on. These disclosures benefit the buyers because they outline what faults the property has. Additionally, they benefit the sellers because, after the acceptance of the disclosures by the buyer, the seller is free from any future disputes regarding all the disclosed information.

Home inspections also happen during this time. These can include general contractor, pest, roof, chimney, foundation, and sewer inspections to see if any or all these systems have issues that require repair. Buyers generally elect to perform a select variety of these inspections as the cost typically comes out of their end.

Step 4: Repair Negotiations and Appraisal

Following inspections, the buyer could submit a Request for Repairs, which will either ask the seller to fix an issue or give a credit based on the findings of their inspection. Once a decision has been made, the buyer signs the inspection results, thus removing their inspection contingency. At this point, the buyer cannot pull out of the transaction without losing the deposit unless the home does not appraise, or the buyer cannot get a loan. The seller has the option of agreeing to the repairs or they may negotiate the price down to compensate. Levine Homes’ expert negotiators and qualified construction department make this part of the process a breeze.

If the buyer’s offer includes an appraisal contingency, an appraiser will come out to the home. During this visit they will take notes on the property, measuring square footage and lot size to make sure it matches the tax assessor information. The purpose of the appraisal is to ensure that the loan does not exceed the property value. If the appraised value of the home comes back lower than the purchase price, then either the parties can agree to renegotiate the purchase price, the buyer can come up with the monetary difference, or the contract may be canceled.

Step 5: The Mortgage Process

In this part of the process, nearly all the work must be done by the buyer. First, they submit a loan application to their lender, either directly or through a mortgage broker. The lender requests a series of personal financial disclosures that usually include several months of bank and loan statements, previous tax returns, pay stubs, etc. Within 3 days, the lender sends a Good Faith Estimate (GFE), which breaks down the estimated closing costs. An appraisal is also ordered by the lender at this point. Additionally, homeowner’s insurance is purchased, and funding must be approved. Once financing is secured, the loan contingency will be removed.

Step 6: Title Searches and Insurance

When all financing and other requirements finish, it’s time for closing. First, the Title Company runs a title search. Most contracts state that the seller must provide a free and clear title to the buyer. Next, the buyer may secure title insurance to ensure that they are safe from any future disputes on the property’s title. Title insurance is not required for cash transactions, although most buyers want a policy in place to protect their interest in the title. If a buyer utilizes financing, the lender will most likely require title insurance. Finally, the buyer’s lender sends the final loan documents to the escrow agent.

Step 7: Final Verification

The buyer will do a final walk-through to make sure the home is in the same condition as when the offer was made. The buyer will also check to see if all the necessary repairs were made from the Request for Repairs, if any. Assuming all goes well, both the buyer and seller will sign one of the final forms known as the Verification of Property. The buyer then finishes paying the down payment, closing costs and other expenses to the escrow agent. Once the deed is recorded and the funds are disbursed, the sale closes, and your real estate transaction has been successfully completed!