What Happens When Your Offer Is Accepted
If you're thinking about buying, or if your offer has been accepted, this will hopefully give you an idea of what you can expect when that exciting moment happens and you get the call that you just bought a home!
As this is a comprehensive post, I've summarized the sections below in case you want to jump directly to one.
This Article Includes
So, what is escrow?
Escrow is the time period that begins once your offer is accepted and lasts until the transaction officially closes. For transactions that are financed (the other option is cash), the typical close of escrow is 30 days. Many banks though can close loans in as fast as 17 to 21 days as well, but I don’t want to get too far into the weeds on quicker closes just yet.
Once your offer has been accepted, we will send the purchase contract to the title company and the lender on your behalf.
What is the role of the title and escrow company?
You may be wondering what role the title company (also referred to as the escrow company) plays in the closing process. The title company serves several purposes. Primarily, even though the buyer pays the majority of the escrow fees in San Mateo County (and the same in San Francisco, though in Santa Clara County, the seller typically pays) they act as a neutral third party in the transaction. Some of the names of local title companies in our area include Fidelity National Title, Old Republic Title, First American Title, Lawyers Title, North American Title, Chicago Title, and others. In Northern California, typically title and escrow are handled by the same company; in Southern California, there's usually two separate companies handling each part of the process.
In your transaction, the escrow officer will assist with the following:
Prepares your loan documents for your signatures
Prepares your estimated closing statement allocating all of the costs in the transaction (this should be very similar to the good faith estimate you likely have already received from your lender)
Acts as a neutral "bank" for holding your down payment funds and closing costs; they can also provide you with the wiring instructions for sending in your closing funds (via wire or cashier's check, personal check not accepted)
Meets with you in person to sign and notarize your loan documents and closing papers and educate you about what you are signing (if it's not possible for you to sign in person, a mobile notary can be sent to your home, office, or even another city for you to sign, at a small cost and slight delay)
Offers you two title insurance policies: an owner's policy, and a lender's policy (title insurance policies are generally the same rate regardless of the title company, and the rates are on file with the California Department of Insurance, though you are allowed the legal right to purchase any policy you wish.
Organizes the paying off of the seller's loan, if any
Provides a copy of all closing documents to you at the end of the transaction (in addition to all the transaction documents you will receive from me)
Physically records your grant deed and deed of trust (your mortgage) at the County Recorder's Office in Redwood City on our close of escrow date
Your first action items once your offer is accepted...
1) Initial Deposit
It's time to send in your good faith deposit to the title company. This is typically done within one business day of offer acceptance, and needs to arrive by the end of the first business day. The default language in the contract is that the wire must be sent within three business days, however, I suggest writing the offer for it to be sent within one business day of acceptance. This way, the deal feels more solid and the seller sees the funds in right away.
Practically speaking, to comply with the contract, we suggest sending the wire the same day, or no later than the next business day after offer acceptance. The amount is typically 3% of the purchase price. If there were any counter offers, and the price has increased from your original offer, it is important to wire the same percentage as the original offer (per the California Association of Realtors purchase agreement we typically use, though as a minor technicality, if it was the PRDS version of the contract, the deposit written in the contract would remain, not adjust if the price was negotiated higher than the first offer). Wiring instructions will be sent to you via secure email from your escrow officer. Due to wire fraud, prior to sending the wire from your bank, it is very important for you to call the escrow officer on the phone to verbally confirm the wiring instructions. We’ll share with your more information around this, as wire fraud is a very real thing. Imagine if your or someone’s else were hacked, and you sent funds to an impersonator. Not good.
2) Finalizing financing terms
If you are obtaining a loan, if you haven't finalized your lender already, you need to do so no later than 24 hours after acceptance, however I strongly recommend finalizing your lender prior to submitting an offer. This is important because with a quick close, your appraisal needs to be ordered right away (that can take a week plus to get back) and the bank can begin finalizing your loan. There’s a lot of heavy lifting the lender will be doing behind the scenes, though hopefully you’ve already gone through underwriting at this point so there is less work to do. In my opinion, I don't recommend submitting any offer without already having gone through underwriting. Also, assuming your lender has a deep understanding of the financial markets and interest rate fluctuations, they can best guide you on when to lock your rate, though you’ll want to do it in the early part of the transaction. One lender I work with follows the market like an analyst and has a solid understanding of not only the US bond market but also foreign markets (he was a former currency trader), which to many of our clients is of high value, especially those who enjoy getting into the weeds on interest rates. In addition to locking your interest rate, your lender may ask for some updated documentation to finalize your loan (perhaps a bank statement is a month or two old, but now has one or two month's more income in it). The bank will also send you your initial disclosures for you to review and sign.
If your offer has a property condition contingency, then we'll schedule any inspections you wish to be further educated about the property. There are a variety of inspections available to you, though the most common ones could be a home inspection, pest inspection, or engineering inspection. If there's particular things you learned from the seller's disclosure package that are concerning to you, now is the time to investigate further.
4) Homeowner's insurance
We have a super detailed post about homeowners insurance on our blog. You can also take a look at the links below to view specific sections that may be of interest. While I know this may not be the most exciting reading, it's important to understand so you are not underinsured.
Part 2 - Reconstruction Value Of Your Home
Part 3 - Personal Property Coverage
Part 4 - Loss of Use Coverage
Part 11 - Earthquake Insurance
Part 12 - Flood Insurance
If you are concerned that you may have difficulty obtaining the insurance coverage you want for the home, I recommend checking with your insurance provider prior to submitting an offer to make sure you feel you will be adequately covered.
Once you've finalized your policy, you'll want to share your insurance details with your lender as well as the escrow officer. The bank won't lend without knowing proper insurance is in place (the last thing they want - and you want - is the day after you move in there is some type of catastrophic loss and there's no insurance). As part of closing, the escrow officer will make sure that
5) Home warranty options
Not urgent, but if you chose to purchase a home warranty as part of your purchase, you will want to choose your policy. This is different from homeowners insurance.
After you have selected your policy, let us know and we'll make sure the order is placed on your behalf by the escrow officer (the policy cost will be added to your closing costs). Most policies are $400 to $800 and are valid for one year, though you can certainly extend beyond the year if you wish. Not everything in the home is included in the warranty, so it's important to review the policies in advance for what is covered. If you're curious to get a sense of the types of different plans out there, you can check out current ones from Fidelity Title, Old Republic, American Home Shield, or First American.
A side note: we do not recommend or endorse home warranties from any specific company. I've seen some clients not use them at all, or if/when they did have an issue, they asked their friends for a referral, or they found a local, well reviewed vendor on Yelp or Thumbtack, for example. If you call the home warranty company when you have an issue, you agree to use their approved vendor to diagnose and repair. I've seen other clients move into their new home, and within a few weeks, their hot water heater or furnace stops working. What's nice is you call up the home warranty's 800 number, pay a service fee of around $80 to $100, and they'll send a repair person to take a look and either fix or replace at no additional cost. They don't cover everything, so again, read the fine print before moving forward. Having observed hundreds of clients buying them, I can say that no one has been blown away by the customer service they received, though for those who took advantage of them, they were glad they did.
6) Scheduling movers
Regarding moving, I suggest hiring your movers well in advance of your move as depending on your target move date, they may or may not be available. However, we do not recommend scheduling the movers on or within several days of your scheduled close of the escrow date, as sometimes there can be delays and we don't want you to have reschedule your moving trucks twice - that can be a headache! An example of an uncommon but real delay is usually lender related where loan processing was not done as quickly as everyone had hoped. I suggest not scheduling movers - or any contractor/handyman work, painting, or termite tenting, for example - until at least 3-4 business days after the close of escrow. If your timeline is tight, please talk to me so we can sort out your timing.
7) The 10 Commandments of Escrow
There are a few things you can do to help prevent unexpected snags during closing. Of course, there are sometimes unexpected changes - just let us know as soon as possible so we can help you navigate.
Here are the 10 Commandments for Escrow:
Don't make any major purchases.
Don't quit your job or change jobs (if you are in the process, please let your lender know asap)
Don't apply, co-sign or add any new credit
Don't open any new credit cards
Don't change to a new bank
Don't close credit accounts or consolidate debt without speaking to your lender
Don't wait too long to respond to lender requests for documentation (every day counts)
Don't change your loan terms near the closing date
Don't wire money to escrow from an account that hasn't been reviewed by the lender
Don't change your marital status
An Overview of the Estimated Closing Statement
Approximately 5 - 7 days before closing, the lender will send their loan documents into escrow. The escrow officer will then prepare the final closing documents in anticipation of closing. We will make sure to review this for accuracy and then send it to you for your review. This statement will include several items, most of which are the title/escrow fees, your loan fees, and commission.
Title & Escrow Fees
These include your owner's and lender's title insurance policy which ensures you are receiving the home with a free and clear title. The escrow fee is for the title company to process all of the paperwork in the transaction, including coordinating with your lender the loan documents, necessary taxes, processing, as well as making sure the grant deed and deed of trust (your mortgage) are recorded at the County Recorders Office in Redwood City on the day of closing.
You will also see that the property taxes paid in advance by the seller have been prorated to reflect our date of close, and as the buyer, you will credit the seller the difference they have prepaid until the end of the current tax period. After the close, you will receive a supplemental property tax bill from the County in the mail requesting the difference between the Seller’s old property taxes and your new tax base. Also note, after closing, in the mail at your new house, you'll receive a bunch of spammy but official-looking documents asking if you want copies of your deed, etc -- if you read the fine print, you'll see they are not official government documents, so feel free to discard. If you're not sure, please ask us, or your escrow officer, as we don't want you to toss anything that could be important.
Insurance and Other Items
You will see an estimate for the cost of your homeowner’s/hazard insurance policy, which may or may not be accurate, depending on if you have provided your insurance quote to the escrow officer or not.
Any difference in the fees offered between the seller and listing agent's agreement and our agreement will be listed on the closing statement.
Things Can Change
Upon review of this estimate, if you see any items on there that look strange or see numbers that seem to be different than what you expected, please let us know. It is possible that even when you go in to sign your loan documents, the estimate you review at that time could change minimally as well. For example, if we were to close one day later than scheduled, the property taxes would be recalculated a small amount, and you'd also be paying an additional day of interest.
Cash Required to Close
At the very bottom of the closing statement, there will be an estimate for the amount of cash required to close. This is the bulk of your down payment as well as all of the items on this estimated closing statement. This is also the amount you will wire to the escrow account. We recommend sending your final wire no less than two business days prior to closing to ensure it is received at least one day prior to close.
What happens the week-ish before closing?
If you haven’t yet finalized your homeowners/hazard insurance policy, you must do so no later than a week prior to close. If your insurance agent has any questions about your home that you are unsure about, please have them let us know.
You will also want to contact the utility companies to transfer the water, garbage, and PG&E bills to your name, and of course activate your internet, phone, and TV service as well.
About a week prior to closing you’ll schedule a closing appointment with the title company. In general, you should sign your closing/loan papers one to three business days prior to closing in person at the title company during normal business hours. However, a signing appointment can be coordinated in the evening or even on weekends with a mobile notary, though if you have the flexibility and bandwidth, I suggest you sign in person due to the possibility that the mobile notary may not be as familiar with all aspects of your transaction, and it could result in more of your questions needing to be answered later or the next day by your escrow officer.
Your funds should be deposited into escrow no less than 2 days before closing, and wiring is usually the most convenient. The title company will not accept a personal check, though they may accept a cashier's check, however, some out-of-state banks may place up to a ten-day hold on sending funds, so wiring is generally best.
We will do a walk-through/verification of the condition prior to closing, usually one to three days before closing. The purpose of this walkthrough is to verify that the property is in essentially the same condition it was at the time of the offer (no damage to the property, no fixtures removed, all agreed-upon appliances are there, etc.) The walk-through is not required though, and if you’ve been to the home during the escrow period you may choose not to, but it is totally up to you. Regarding cleaning, the contract requires that the property is left in neat and broom-clean condition, with all personal property and debris removed. After your movers move you in, or before, you may wish to arrange for a professional cleaning service to give your new home a thorough cleaning using the cleaning products of your choice.
Do I need to be somewhere or do anything on the day of closing?
Once you sign your closing papers and wire your money into escrow there is nothing further you need to do to close. The lender will send their funds into escrow the day before closing, and once all conditions have been met and all funds have been received, the escrow officer releases the deed to be recorded on the morning of the close of escrow at the County Recorder’s Office in Redwood City. Once the deed is recorded, the escrow officer will notify us, and we will let you know the good news right away!
The actual time of close is usually late morning or early afternoon. At that point, escrow is closed and you are the owner of the home! Arrangements will have been made ahead of time to get keys, manuals, and remotes (if there are any) to you at closing.
That is it! To review, nothing is required of you on the day of closing...it is an automatic process where the title company records the deed! Enjoy your new home.
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