All About Escrow
Buying A Home In Los Angeles, Part 6
This is the sixth part of the series ‘Buying a Home in Los Angeles’.
Congratulations! Your offer has been accepted! The first phase of your Los Angeles home buying process is behind you and, since California is an escrow state, you will now enter into the next phase, escrow. This is part 6 of the ‘Buying a home in Los Angeles’ series designed to teach you all about the escrow process.
What is Escrow?
Simply put, escrow is the handling of the contract by a neutral party which will ensure that the terms of the contract are met by both sides and all monies will be disbursed by them upon satisfactory fulfillment of the contract by both parties.
What happens during the escrow period?
Below is an overview of what to expect during the escrow process. There are a number of contingencies that need to be met by both buyer and seller. Default by either can result in the cancellation of the contract:
➡ Deposit Earnest Money into Escrow (typically 3%)
Part of the offer will include putting down a good faith deposit (GFD) in the amount of 3% of the total purchase price and this amount will need to be in the escrow company’s hands within 3 days of contract signing. The GFD is applied to the full purchase price and will be refunded if the buyer backs out of the contract for a valid reason, before the removal of all contingencies. If the buyer is found at fault, then this deposit can be forfeited to the seller.
➡ Schedule Inspections, Schedule Survey (if necessary)
With a 7-day inspection contingency, your Los Angeles Realtor® will get a qualified home inspector out to the home as soon as possible after acceptance of the contract. The inspector will conduct a thorough investigation of the property. Generally, the buyer is expected to be present during the inspection, after which the inspector will give them a verbal report. A full report will be sent later that day or the next. Usually, they require payment at the time of service. The amount of the inspection varies depending on the size of the home. But you can expect to pay a minimum of around $400 in Los Angeles.
The inspector almost always suggests that the buyer conduct additional inspections for things like the chimney, foundation, air-conditioning, plumbing, etc if they cannot determine the condition themselves. In this case, your Realtor® will order those inspections as quickly as possible. They also will need to be paid upon service.
If you are lucky and there is nothing wrong with the home, then you will remove the inspection contingency, which means you can no longer cancel the contract for physical conditions, unless something really unusual surfaces during the escrow period.
➡ Negotiate for Repairs and Treatments
The next step will be to put together a ‘Request for Repairs’ to submit to the seller. Generally, these will be the more costly items, not everything on the list, which the buyer would like paid for by the Seller. At this time the clock on the 7 days stops and the ball is in the seller’s court.
The seller may agree to the terms of the Request for Repair, they may negotiate them, or they may refuse them. At this point, if the buyer does not want to continue with the process then they may request cancellation of the contract. Once terms are agreed upon, then they will remove the inspection contingency.
➡ Buyer Investigation Contingency Removal (Typically 10 days after Acceptance or Date Specified in Contract)
➡ Schedule Appraisal (or ensure appraisal has been scheduled)
If the property is a single-family home not part of a homeowners’ association, then pretty much all the buyer has left now is the appraisal and the loan approval. The standard for these is 17 days, although in this market your agent may have requested a longer period. The lender will help determine this period.
The appraisal will be conducted by the lender at the buyer’s expense. If the property appraises then there is no problem. If it doesn’t then the buyer has the option to request cancellation of the contract, ask the seller to lower the price, or pay the difference themselves. Without one of these options, the buyer is not going to be getting loan approval.
➡ Appraisal Contingency Removal (Typically 17 days after Acceptance or Date Specified in Contract)
If all goes well and the loan is approved, the buyer will remove the loan and appraisal contingency together. At this point, they basically have bought the home.
*** If you are a cash buyer remember to get your homeowner’s insurance in place. If you are getting a loan it will be a requirement.
➡ Loan Contingency Removal (Typically within 17 days after Acceptance or Date Specified in Contract)
Until the seller has met his or her contingencies, then the buyer can still request cancellation of the contract even if they have met all theirs.
The lender will give the go-ahead
➡ Obtain Loan Approval in Writing (As soon as possible)
Clear Title: Buyer and seller have an opportunity to review a preliminary report of the title (local forms of this vary) that reflects whether any encumbrances, liens, or other issues have been discovered that might prevent the buyer from taking clear title to the seller’s property.
Final walk-through with the buyer after repairs and treatments are complete.
Closing: Parties each sign the required documentation, and funds are presented by the buyer or the buyer’s lender to satisfy the terms of the sale.
If everything goes smoothly, then once the loan has been funded and the title company has received the funds, they will go down to the County Recorder’s Office (usually the next day) and record the change of title.
Recordation and Possession: The transaction becomes part of the records of the local government entity with jurisdiction, and the transaction is complete. The buyer takes possession of the property that the seller has vacated unless a seller carryover or buyer preoccupancy has been part of the contract.
*** If one side fails to comply with their part of the contract then the other side can issue a Notice to Perform. Failure to do so can result in a request to cancel the contract. In order to cancel a contract, both sides need to sign.
➡ ️Escrow is closed and the buyer is the proud owner of a new home!
In California, escrow plays a critical role in real estate transactions. Hopefully, with this general escrow timeline, you’ll feel confident in navigating the often complex escrow landscape with the guidance of your Los Angeles Realtor.
Please note: This is an overview of typical terms and timelines for California real estate transactions if a loan is involved. These are not definitive as each transaction is negotiated differently.
More from ‘Buying a Home in Los Angeles’ :
Step 1: Getting Pre-Qualified for A Mortgage
Step 2: Finding a Realtor
Step 3: Define your criteria
Step 4: Starting Your Search
Step 5: Making the Offer
