Escrow, Inspections & Appraisals

ESCROW: Now that you've found a buyer to purchase your home, and with the help of your real estate agent, you've reviewed any submitted offers to purchase and accepted the one that best meets your selling needs - now what? Now we open escrow and start the process of transferring the ownership of the property from you, the seller - to the buyer. There are of course a number of steps that need to be completed first however.

​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, the buyer will almost always be asked to deposit what is called earnest money (think of it as an indicator of their 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 buyer fulfill the terms of the contract and close the transaction. You can’t touch it and the buyer 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 the buyer would 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. If the buyer is obtaining a loan to purchase the property, their lender should provide them with a list of estimated closing costs. If the buyer is paying cash, the buyer's agent should provide an estimate of their closing costs. The seller's closing costs should be provided to the seller by their agent at the time a contract for sale is reviewed and accepted by the seller.

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.

The choice as to whether to ask for a particular inspection to be performed in the contract negotiations, is up to the buyer. The decision of what company performs the inspection is also the buyer's choice, since the buyer almost always pays for the cost of the inspection. The inspection terms of the contract should be carefully read and understood by both seller and buyer.

One last note...as the seller, you can always complete a pre-sale home inspection before listing your home on the market. It can help prioritize any repairs that you might want to make to "get ahead" of any concerns that might arise in the event the buyer asks for a home inspection in the contract.

​​​APPRAISALS: When selling your home, a buyer's lender (if they are utilizing a home loan to purchase) will require an appraisal, which will play a role in determining if the lender will approve their 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 pay the difference in cash, have the seller lower the purchase price, or get a second opinion. This is an important factor to consider when pricing your home for sale. Often, a homeowner will arrive at a sales price that they feel is fair and reflects the time and money they have placed into the home. However, even if you find a buyer who is willing to pay that price and submits an offer, unless financing is not being utilized, an appraisal will be ordered and it will be hard to convince that buyer to pay more for the home than the current market value. That's why it's important to work with your agent to create a listing price that is based on current comps - matching your homes unique qualities and location, to arrive at the current market value.