California home buyers today know more about the property they are buying than at any time in history due to the abundance of disclosures they receive throughout the transaction as well as legislation enacted to protect home buyers. But, if you’re like most people, somewhere during the process you’ll be so worn out by signing and initialing that you’ll probably stop reading what is put in front of you and do anything to just get the keys. Which is why you need an experienced full time licensed agent to help you through the process.Here’s how it works.
The Offer: After weeks, months, or years of going to open houses, browsing websites, looking in newspapers and who knows what else, you finally find the home of your dreams. Yeah, congratulations, but don’t start packing to move just yet.There’s a few steps along the way starting with the offer.What is commonly referred to as the offer is, in fact, the “RPA” or Residential Purchase Agreement that is used in most real estate transaction in California.This document becomes the basis for the escrow instructions and the processor and underwriter at your lender will scrutinize the terms and conditions as well. So, after thinking about price for the longest time and speculating with friends, family, co-workers and agents as to whether home prices are going up or down, what you’ll soon come to understand, if you have good representation, no let’s make that a great agent is that the terms and conditions, which are incorporated into the offer, “purchase contract” or RPA may be as important or even more important than the purchase price. Really.Here’s some examples. Let’s say your real estate agent forgets to include that the seller pays for termite work, or repairs, or certain reports or closing costs. Guess who gets stuck with those items? Not the agent and not the seller.Just remember you need an experienced real estate agent to protect you throughout this process. Just remember that unless your offer is in writing , it means nothing in CA. So, if you go into a home and the listing agent or whoever is holding an open house indicates that the seller will take your low ball offer, that means nothing. Offers to purchase must be in writing as must acceptance and just about everything else related to the transaction.
The Counter Offer: Unless you are offering full price or more, all cash, with no contingencies (what’s a contingency you wonder - read below), and want to close in ten days, chances are you might receive a counter offer from the seller. The counter offer can be on terms, or price, or both. If the property you are interested in buying is highly desirable, there may be multiple offers. And, since this is CA Real Estate, everything must be in writing.If the seller has multiple offers and is responding to more than one buyer, they will check off the multiple offer box on the counter offer form. That means that even if you accept the counter offer and sign, you may not get the property. Sellers do not have to counter the same price, terms and conditions to all buyers. If you aren’t in a multiple counter offer situation, it’s easier.
Acceptance: Once the terms are ironed out, and both parties have signed and agreed on the price and terms you have “acceptance”. The date and time of acceptance is very important as many of the timelines in the RPA are calculated as days after acceptance. Sounds confusing? Not really. If you have 7 days after acceptance to complete a contract requirement, just grab a calendar, look at the acceptance date and starting on the next day after, count 7 days.
Escrow: A copy of the fully executed purchase contract, the RPA, will be delivered to the escrow holder. In southern California, escrow holders are typically escrow companies while in northern California the escrow holder may be the title company. Brokers can also be escrow holders. The earnest money deposit (EMD) will also be delivered to the escrow holder within three days after acceptance. If the property is a bank owned foreclosure (REO), the escrow holder may require a bank check or wire transfer. Most standard sales allow a personal check to open escrow and many short sales don’t open escrow at all until such time (usually months later) that the short sale has been approved. It is becoming more common practice these days for short sale listing agents to actually have the buyer place a small earnest money deposit into escrow.
The escrow company will draft escrow instructions for the parties, forward a preliminary title report (see below), NHD report (if requested), vesting information, and other transaction documents to the buyer for signature, information collection, or disclosure to the buyer(s). It is important that the buyer carefully review the escrow package with the real estate agent representing them.
Disclosures: There are close to 20 potential disclosures, reports, and inspections that buyers can expect to receive from the seller of the property. It is important to note that if the property is “real estate owned” by the bank (REO — foreclosure), the seller is exempt from certain but not all disclosures. Many REO listing agents and asset managers are taking broad liberties with these exemptions and misapplying the requirements. It is important that REO buyers are represented by a real estate agent who is familiar with the process of buying a foreclosure.
Some of the most common disclosures buyers can expect to receive (in California) are the “TDS” Transfer Disclosure Statement, "SBSA"Statewide Buyers and Seller Advisory, “SPQ” Supplemental Property Questionnaire, “WHSD” Water Heater Smoke Detector, “FLD” Lead Based Paint, “FIRPTA” and others.
Preliminary Title Report: The “title pre-lim” is a commitment from a title insurance company to provide insurance that you have clean title. Huh? When you buy a home, you and your lender, want to be sure that the seller’s crazy uncle Fred doesn’t show up and say he owns the house, or that the divorced spouse really owns it, or there is a lien from someone who had a judgement that is now your responsibility. In some states, an extensive title search is physically done at the courthouse. The process is a little different here in CA. But all you need to know is that except for the exclusions listed, you will hold clean title to the property at closing. Pay special attention when you are buying a bank owned foreclosure (REO) or a condo. Incidentally, as we often tell buyers, when you purchase a foreclosure at a trustee sale, you do not have title insurance and can’t get it for one year thereafter. In other words, you could be on the hook for all the liens filed against the property. And, people who get foreclosed on typically haven’t paid a lot of other bills. So, as they say, buyer beware. And get title insurance.
Inspections: Get a home inspection from a professional home inspector. Don’t have your brother in law or a handy man friend check out your new home, unless of course they are professional home inspectors. When you get the written report from the inspector, you might want to forget about buying that property, or any other. Truth of the matter is that most things the inspector will find wrong are not serious enough to kill a deal over. A common example is items that are not up to code by today’s standard but were perfectly fine at the time the home was built. Then there’s also the deferred maintenance which every home has and chances are that yours will too when you decide to sell it.A good home inspector will review the report with you and if the findings are such that you should pass on the home (cancel the contract), will let you know. On the other hand, if after scaring your socks off, the items the inspector comes up with are fairly standard, you’ll also be told that as well.Here’s what you really need to know about home inspections. If your agent feels there are enough “material” issues, you can either ask for the items to be repaired or better yet ask for a credit at closing.
Some inspectors may also recommend additional inspections such as a sewer line video or a chimney inspection. Some properties may need to be checked for mold and others radon. Better safe than sorry so if you have concerns get the additional inspections. Please note, it is common in Northen CA for sellers to have a number of inspections done prior to placing the home on the market. In our opinion this is better real estate practice because buyers know in advance what the issues are with the home.
Appraisal: An appraiser will visit the property (they sometimes do drive by and desk appraisals), meet with either the listing agent or the agent representing the buyer, take some measurements and issue a report either supporting or shooting down the sale price. It’s rare that the appraisal comes in above the purchase price but it has been known to happen. The buyer pays for the appraisal and is entitled to receive the report. Don’t hold your breath waiting for it. They tend to be rather dry and chances are that the comps the appraiser uses are ones you are already very familiar with.
Removing Contingencies: This is the part of the home buying process that buyers don’t like at all. The good news is that if you buy a foreclosure (REO), the decision is for the most part taken out of your hands. (More on foreclosure sales later.) For standard sales here’s what happens.
The RPA (Purchase Contract) will stipulate time periods for inspections and contingency removals. Some of these are relative to inspections of the subject property and others are related to your loan (unless you are paying all cash). The biggest challenge is getting your lender to give you final approval of your loan. Remember that pre-approval you recieved? Well, it listed certain conditions. At the time you may not have paid attention to those conditions but once the processor at the lender gets your file you certainly will be focused on removing any conditions so that you can remove contingencies during the allotted time period. In a standard sale, the contingencies are removed when you sign a form stating such. In a foreclosure (REO), the bank’s addendum will undoubtedly have what we refer to as passive contingency removals. Wrap your mind around how this works. If by a certain point, you don’t specifically say that you are canceling the contract, it is deemed that you have removed the contingencies. Whoops. The important points about contingency removal is to make sure your agent negotiates enough time for your loan to be approved - the default in the contract is 17 days, ask for more.
Final Walk Through: Now you go back to the property, preferably before your money goes into escrow and verify that the home is in substantially the same condition as the day you made your offer
Closing Escrow: This is the part that gets you closer to getting the keys.Three things need to happen before you actually get the keys. First you have to sign your loan documents (unless of course you are paying “all cash”). The signing will either take place at the escrow office (remember those folks) or as is more commonly happening these days, a mobile notary familiar with the signing process may come to your place of business or home. After your loan docs are signed, the escrow company will fax or physically send them to your lender. Many lenders will accept faxed documents. The next step is funding. Your will have to (in most instances) wire your funds to close to escrow. Some escrow companies will accept a bank check; none will take a personal check. After your funds are in escrow, the lender will wire their funds. Once escrow has all the funds to close from everyone, they will notify title to set up recording. Funding and recording will not happen the same day in LA County. For recording, the title company will have someone literally stand on line at the courthouse and submit your deed for recordation. This is a physical process. Once the deed is recorded, escrow is notified and they in turn now notify the agents representing the parties.
Laurie Jacksonn is a bloger and writer at BuyEssayClub educational project.