The California Escrow Process - (2024)

TheCalifornia Escrow Process

Maybe you’re reading this because you’ve just made an offer on your dream home in the South Bay. If so, congrats! Or perhapsyou’re thinking of selling your place and want to know more about how thatworks. Buying a housecan be a complex process for which mostpeople are generally unprepared. One of those mysterious elements is escrow – also known as closing – which occurs between the time the seller accepts theoffer and the buyer gets the keys. So, whathappens in between? How long does the whole process take? The buyer and selleragree to an escrow timeline during contract negotiations, and each sale varies,but normally escrow takes around 30 to 60 days to close. This article willprovide you with a general guideline so you can get familiar with the wholeprocess.

Step 1: Escrow Begins

Once an offer to buy theproperty has been accepted and a purchase agreement contract has been signed byboth the buyer and the seller, escrow begins. From here, an escrow company takesover and acts as a neutral third party to the transaction. The companyimpartially oversees the escrow process, making sure all conditions of the saleare properly met by each party. They handle tasks like ordering the preliminary title report, prorating taxes, andreceiving, holding, and dispersing funds, etc.

Step2: Initial Deposit

Before the transaction can go any further, a fraction of the downpayment (referred to as an earnest money deposit) mustbe placed into the escrow account by the buyers. This ensures the buyers put some skin in thegame, to show their seriousness about the purchase.During this time, theescrow officer will also send specific escrow documents. Typically, the sellerwill receive a package including the grant deed to notarize, escrow instructionsto sign, commission instructions, tax forms, statement of information, andpayout documentation. The seller must get these documents back to escrow in atimely manner for escrow, title, and the lender to proceed.

Step 3: Disclosures and Inspections

During this time period, the buyers perform their due diligence and investigations on the property, and the home must be available for the buyers to do so. Typically, within the first 7 days of escrow, the seller fills out and signs various disclosures about the house or property as mandated by state law. Check out a list ofCalifornia’s home selling disclosures. The disclosures provide information on known problems or defects for the area and property, as well as improvements, repairs, and environmental hazards. Certain cities in the South Bay, such as Hermosa Beach, also require a city report, which can take up to 2 weeks to process. Once these are complete, they are sent to the buyer to review and sign off on. These disclosures benefit the buyers because they outline what faults the property has. Additionally, they benefit the sellers because, after the acceptance of the disclosures by the buyer, the seller is free from any future disputes regarding all the disclosed information.

Home inspections also happen during this time. These can include general contractor, pest, roof, chimney, foundation, and sewer inspections to see if any or all these systems have issues that require repair. Buyers generally elect to perform a select variety of these inspections as the cost typically comes out of their end.

Step 4: Repair Negotiations and Appraisal

Following inspections, the buyer could submita Request for Repairs, which will either ask the seller to fix anissue or give a credit based on the findings of their inspection.Once adecision has been made, the buyer signs the inspection results, thusremovingtheir inspection contingency. At this point, the buyer cannotpull out of the transaction without losing the deposit unless the home does notappraise, or the buyer cannot get a loan.The seller has the option ofa*greeing to the repairs or they may negotiate the price down to compensate. LevineHomes’ expert negotiators and qualified construction department make this partof the process a breeze.

If the buyer’s offer includes an appraisal contingency, an appraiser will come out to the home. During this visit they will take notes on the property, measuring square footage and lot size to make sure it matches the tax assessor information. The purpose of the appraisal is to ensure that the loan does not exceed the property value. If the appraised value of the home comes back lower than the purchase price, then either the parties can agree to renegotiate the purchase price, the buyer can come up with the monetary difference, or the contract may be canceled.

Step 5: The Mortgage Process

In this part of the process, nearly all thework must be done by the buyer. First, they submit a loan application to theirlender, either directly or through a mortgage broker. The lender requests aseries of personal financial disclosures that usually include several months ofbank and loan statements, previous tax returns, pay stubs, etc. Within 3 days,the lender sends a Good Faith Estimate (GFE), which breaks down the estimatedclosing costs. An appraisal is also ordered by the lender at this point. Additionally,homeowner’s insurance is purchased, and funding must be approved. Oncefinancing is secured, the loan contingency will be removed.

Step 6: Title Searches and Insurance

When all financing and other requirementsfinish, it’s time for closing.First, the Title Company runs a title search. Most contracts statethat the seller must provide a free and clear title to the buyer. Next, the buyer may secure title insurance toensure that they are safe from any future disputes on the property’s title.Title insurance is not required for cash transactions, although most buyerswant a policy in place to protect their interest in the title. If a buyerutilizes financing, the lender will most likely require title insurance.Finally, the buyer’s lender sends the final loan documents to the escrow agent.

Step 7: Final Verification

The buyer will do a final walk-through to make sure the home is in the same condition as when the offer was made. The buyer will also check to see if all the necessary repairs were made from the Request for Repairs, if any. Assuming all goes well, both the buyer and seller will sign one of the final forms known as the Verification of Property. The buyer then finishes paying the down payment, closing costs and other expenses to the escrow agent. Once the deed is recorded and the funds are disbursed, the sale closes, and your real estate transaction has been successfully completed!