The following is a reprint of my column that appeared in Frontiers In L.A. magazine on January 3rd, 2011
First, Happy New Year. I hope you had an amazing holiday. When we left off last time, we were taking a casual stroll through the home-buying process, and what exactly one can expect when purchasing a home. As of the last issue, we’ve found you a mortgage broker, got you pre-approved, found you a buyers agent you love, zeroed in on the home of your dreams and negotiated price and terms. This is where it all starts to get real! Now it’s time to open escrow.
5. Escrow opens. The escrow period is the time during which all the business of the actual transaction takes place. At this point, you will be required to submit your three percent good faith deposit to escrow—usually either by wire transfer or personal check. It will be cashed almost immediately and held in an escrow account. This three percent is part of whatever down payment you agreed to make on the property during the negotiation process. If you offered to put 20 percent down, you will have 17 percent due to close the deal. This three percent is what says “I’m serious about purchasing this property.” Provided you negotiate in good faith and perform as required by the purchase agreement, it is fully refundable should you decide to back out of the transaction (to a point). The escrow company—often selected by the seller, but not always—generates “escrow instructions,” which is the official direction they take based on all of the terms agreed upon in the purchase agreement between seller and buyer. They hold all funds, and no monies received by them can be released without mutual agreement from both sides of the sale. The typical escrow period is 30 days long, but that can vary, especially in today’s market where it can take much longer to get a loan locked in.
6. Inspections. This is also known as doing your due diligence. There are various inspections that you will want to do, at your cost, during your inspection period. At a minimum, you should have a general inspection done by a licensed and reputable inspector. You should always, always, always opt for a general inspection. This is not the time to cut corners. The inspector will do an overall top-to-bottom inspection of the property, and you can expect to pay anywhere from around $300 up to $500 or more depending on the size of the property. You’ll do well to remember that the inspector is not there to tell you what an amazing house you’re getting, or what great condition it’s in. Their job is to point out every little flaw or defect they see—it’s what you’re paying them for. Often, a lot of what they will note in their report is of little or no consequence, but there is always the chance that something major will come up.
Depending on what the general inspection turns up, you may need to call in specialists to further investigate potential issues, such as a mold inspector, a plumber, an electrician, etc. Doing proper inspections can save you huge money down the road, and it’s up to you to do your investigations into the condition of the house to your satisfaction. Most every home sale is intended to be “as-is,” meaning you shouldn’t expect the seller to deliver the property to you in like-new condition. It does not, however, preclude you from taking what you learned and attempting to negotiate repairs or credits based on the inspection reports.
7. Negotiating Credits/Repairs. You thought you were done when you negotiated your purchase price, didn’t you? Not so fast! Now’s the time when we take what we learned about the house during your inspections and decide what you can live with and what’s not acceptable. As I mentioned above, often during inspections, some expensive issues can be uncovered that someone is going to be on the hook for. Ideally, it’s not you. However, depending on a lot of things, you may have to accept the fact that you will be making at least some repairs on your new home. After all, it’s (most likely) not new construction. Let’s say, for example, your chimney inspection uncovers major damage to the chimney, and you have an estimate for $8,000 to repair it. Unless that defect was disclosed to you up front, you made your offer assuming the chimney was in good working condition (it’s possible the seller didn’t even know about the issue when they priced the house). Now you have grounds to issue a request for the seller to give you a credit for some or all of the cost to repair it (or request that they have it repaired themselves).
One of a few things will come of this request. First, they might agree to credit you the entire amount you requested for the repair. Or they might tell you to take a long walk off a short pier—that the home is in fact being sold “as is.” Finally, they might respond with an agreement to give you partial credit. This is the most likely scenario in my experience.
At this point, you’ll decide whether you’re satisfied with the outcome of your request and whether you want to move on and commit to closing the sale. From here on, there’s pretty much no looking back, and you’re all in. Next issue, I’ll wrap it up and take you through the closing, and we’ll have the keys in your hands by the time I’m done! Til then, if you or anyone you know are considering buying or selling a home, please don’t hesitate to call me for a free consultation and/or market value analysis of your home.