Escrow is a process that provides for a fair and equitable transfer of property from one person to another. Escrow opens when the buyer and seller sign a sales contract, commonly called a real estate purchase agreement. The contract, along with any additional addendum’s, serves as instructions for the escrow officer. Escrow includes depositing, with a neutral third-party, funds, documents and instructions necessary to complete the transfer.
Because the real estate transaction involves large sums of money and reams of documentation, escrow can become a confusing game of details, nit-picking and overlapping procedures.
It requires preparation, attention to detail, and desire from both sides to close the deal.
Your escrow officer opens escrow by assigning your escrow an account number and collecting the contract and other instructions, the buyer’s deposit and perhaps additional proceeds or documents related to the transaction. Deposits are either applied to the purchase price, or returned should the deal fall through.
Title insurance is ordered, to protect the buyer against blemishes on the title, a preliminary title search is ran to determine if there are any claims against the title of the property.
The contract and escrow instructions likely contain contingencies for home inspections, financing, appraisal, disclosures, repairs and other tasks either the buyer or seller must complete before the transaction can progress. Each time a contingency is met, the buyer or seller signs off with a contingency release form copied to all parties, including the escrow officer.
The buyer’s lender will order an appraisal as soon as escrow is opened. A residential real estate appraisal is generally required for all mortgage transactions to assist in limiting such risks. It is a supportable estimate of property value, drawing its conclusions from data obtained from the market and the subject property. The lender hires the appraiser, rather than the buyer or the seller, in order to provide a clear and objective statement of a property’s value. The appraiser is not the home inspector.
When the prelim title report is received it will summarize the condition of the title, including easements and liens, claims and encumbrances against the property. The seller must resolve any claims against the title, or they could stall the deal. The title company may check once again and produce a final report to be sure existing claims have been removed and that no claims have been filed since escrow opened.
It is the buyers due diligence to order a home inspection from a licensed home inspector. A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. This is usually conducted by a home inspector who has the training and certifications to perform such inspections. The inspector prepares a written report and delivers it to the home buyer. The client then uses the knowledge gained to make informed decisions about their pending real estate purchase. The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components. An inspector will check the roof, basement, heating system, water heater, air-conditioning system, structure, plumbing, electrical, and many other aspects of buildings looking for improper building practices, those items that require extensive repairs, items that are general maintenance issues, as well as some fire and safety issues. However, it should also be noted that a home inspection is not technically exhaustive and does not imply that every defect will be discovered. A general list of exclusions include but are not limited to: code or zoning violations, permit research, property measurements or surveys, boundaries, easements or right of way, conditions of title, proximity to environmental hazards, noise interference, soil or geological conditions, well water systems or water quality, underground sewer lines and/or waste disposal systems, buried piping, cisterns, underground water tanks and sprinkler systems to name a few.
Within 17 days the buyer needs to have the inspections completed and a decision as to whether or not to move forward with the purchase. If the buyer moves forward the inspection contingency is released and the buyer arranges a homeowner’s insurance policy and decides how to take title (which is a whole different conversation).
No one would drive a car without insurance, so it figures that no homeowner should be without insurance. The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime.
There are various forms of insurance associated with home ownership, including these major types:
Title insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes “lenders” policies, which protect buyers up to the mortgage value of the property, and “owners” coverage, which protects owners up to the purchase price. In other words, “owners” coverage protects both the mortgage amount and the value of the down payment. It is typically requested the seller to pay for the policy.
Homeowners’ insurance: Homeowner’s insurance provides fire, theft and liability coverage. Homeowners’ policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment. Sometimes your lender will request a separate flood insurance policy depending the location of the property.
Home warranties are for existing homes and typically one-year service agreements purchased by seller or buyer. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.
By now only a few loose ends must be tied before the close of escrow.
5 days before the close of escrow you will do a final walk through with your real estate agent to make sure the home is in the same condition it was when you wrote the offer. Remaining paperwork to sign a few days before close includes the buyer’s grant deed, any final escrow instructions or contingency releases, the settlement sheet of disbursements, title reports, the deed of trust lender forms, inspection reports, and tax statements. Escrow closes and the deal is sealed when the escrow office records a new deed in the buyer’s name, the seller gets paid for the home, and all other monies are disbursed. Money may be held in escrow after the close to pay contractors for unfinished work.
Congratulations, you are now a homeowner!
