With so little inventory available, the market is shifting to a seller’s market, even with rates at record lows. So, if you’re a buyer fortunate enough to have signed a purchase contract and gone into escrow, here’s what you need to know to complete the process.
First, let’s define “escrow.” Escrow is a neutral place where money and property are both safe. An escrow officer is like an impartial judge who makes sure everyone keeps his or her word. The escrow officer has a fiduciary responsibility to all parties (buyer, seller, and lender). When all the conditions for the transfer of property are met, the escrow officer oversees the exchange of the deed for the payment.
As a buyer, you may have already worked with a lender to become pre-approved for a loan. If not, you’ll need to find a lender and get all your financial information in order (see last week’s column for details on what you’ll need).
Hopefully, you’ve been working with a real estate agent who walked you through the process of carefully outlining contingencies you need, exactly what is included in the purchase and who will pay for inspections, any repairs, closing costs, etc.
Inspections are a big part of an escrow. My advice to buyers is to take advantage of as many inspections as you can. Yes, you will probably have to pay for them, but better to know what you’re buying, than to end up with nasty surprises after the property is yours. Unless you are buying a property and planning to tear it down and build from the ground up, order inspections!
Here’s a list to consider:
○ Home Inspection
○ Heating & Air conditioning
- Well – both quantity and quality of water
- Septic – physical condition of the tank and function of leach field
- Pest and Fungus – check for dry rot and bugs, both of which are abundant in Mendocino County
- Hazardous Materials – e.g., asbestos and lead paint. Although both were outlawed in 1978, contractors still had supplies on hand and sometimes used those supplies illegally for some time.
- Soil/Geology – if you are unsure of the history of the property and plan to plant vineyards, for example, you will want to know what you’ve got. Are you on the side of a cliff that may be about to give way? Check it out.
- Energy Audit – are you going to need new windows and insulation as soon as you purchase the house? Best to know ahead of time.
- Structural Engineering – two-story house with cracks in the walls, any house with cracks in the foundation? In addition to inspections, making sure you are aware of any liens, easements, or tenant rights connected to the property can save you from big headaches later. Many easements aren’t a big deal; they assure that your neighbor can access their driveway or that a utility company can pass behind your property to access communication or electricity lines.
However, some legal restrictions could prevent you from inhabiting your home for several years or require you to pay bills that weren’t yours in the first place. An easement through the only building site could reduce the value of the property dramatically. If the property has renters, be sure to get written verification of the rental terms (called an estoppel agreement). Because, verbal agreements are only worth the paper they’re written on.
The escrow process is based on everyone acting in good faith. If inspections or the preliminary title report indicate problems, the buyer can withdraw from the contract if the seller is unwilling to remedy the problems. However, the contract is a legally binding document, so there must be a compelling reason to dissolve the contract. Most escrows go through, and the property changes hands in 30-45 days.