Escrow, Inspections & Appraisals

ESCROW: Now that you've found your perfect house and with the help of your real estate agent, you submitted an offer to purchase the home and it was accepted - now what? Now we open escrow and start the process of transferring the ownership of the property from the seller to the you - the buyer. But there are a few steps that need to be completed along the way.

​First of all - what is escrow? Escrow is when an impartial third party holds on to something of value during a transaction. When an offer is made on a home, as buyer, you will almost always be asked to deposit what is called earnest money (think of it as an indicator of your seriousness in seeing that the transaction is completed), that will be placed in “escrow.” That means it isn’t going directly to the seller but is being held by an impartial third party (usually a title company) in their earnest account until you and the seller fulfill the terms of the contract and close the transaction. You can’t touch it and the seller can’t touch it. It’s in escrow. The terms of the contract go into much more detail regarding earnest money and the disposition of it, in the event the transaction does not close for some reason. Please always refer to the contract for these details to make sure you understand the process involved.

Having the escrow and closing of the property handled by a title company is important, because it protects both parties. The seller won’t want to sign over the deed to the home until it has been paid for. And as buyer you wouldn't want to hand over cash without the deed being signed. Escrow ensures everyone gets what they are due at essentially the same time.

The title company used in the transaction will also prepare a title commitment as part of the process. A title search is done to make sure that the seller is in title and that they have no liens or encumbrances on the property that would prevent them from passing clear title to the buyer. The requirements section of the title commitment will note anything that needs to be done by the seller and/or the title company along these lines.The next section of the title commitment is called the exceptions section. This is where any recorded documents that affect the property are listed. These include items such as: the special assessments on the property (if any), easements of record and the subdivision building and use restrictions among other things.

What about closing costs? Closing costs are fees associated with any home purchase or sale and are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by the buyer and can vary widely based on where you live, the property in question, and the type of loan that's chosen. Typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, the buyer might pay between $3,000 and $7,500 in closing costs.

Your lender will give you a Loan Estimate for your loan, which will include what the closing costs on your home will be, within three business days of receiving your completed loan application. But these are just an estimate, and many of the fees listed can change. If they do change, you may receive a revised Loan Estimate so there are no surprises along the way.

Closing....you may hear someone refer to the “closing of the sale.” That’s when your purchase is completed. A closing or “escrow officer” will oversee the final paperwork and handle the exchange of funds and recording of the deed. This person will ensure that all the money is properly disbursed, that the documents are signed and recorded, and that all necessary conditions are met before closing the transaction.

INSPECTIONS: Virtually any system or component of a home can be inspected. Inspections are performed to give the buyer an indication as to the CURRENT CONDITION of that particular system or component. Inspection results are NOT A GUARANTEE by the person performing the inspection that the system or component will continue to perform in the same manner in the future. Some of the more common types of inspections that buyers tend to ask for in a purchase contract include, but, are not limited to: Home, sewer and termite.

The choice as to whether to ask for a particular inspection to be performed in the contract negotiations, is up to the buyer. The company that performs the inspection is normally the buyer's choice, since the buyer almost always pays for the cost of the inspection, however, these terms must be negotiated with the seller in the contract.

If you should decide to have a home inspection performed, you should plan on attending the home inspection review at the conclusion of the inspection and your agent should be right there with you. Chances are, the seller’s agent will be there too (and possibly the seller), to help get any quick answers the inspector might need. During this verbal review, the home Inspector will explain your home’s systems, give you maintenance tips and answer questions you might have.

Written reports will be provided by the various inspectors for any inspections negotiated for in the contract and will include a list of any potential repair items that the inspectors have found. The inspection terms of the contract will outline how potential repair recommendations (if any) will be handled and therefore these terms should be carefully read and understood by both seller and buyer.

APPRAISALS: When buying a home, your appraisal can play a role in determining if your lender will approve your loan. All lenders order an appraisal during the mortgage process in order to assess the home’s market value and make sure the borrower is not attempting to borrow more money than the house is worth.

If the lender's appraisal comes in below the purchase price of the home, the buyer would need to either: pay the difference in cash, have the seller lower the purchase price (f they are willing to), or get a second opinion (if the lender is agreeable).