Understanding The Escrow Process: You’ve accepted an Offer for your home
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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 (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 you’ve accepted an offer, we will send the purchase contract to the title company. You do not need to do it as we will handle the correspondence regarding your new escrow with them.
What is the role of the title 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, 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, and others.
In your transaction, the escrow officer will assist with the following:
Request you to complete a Statement of Information to confirm your identity and eliminate any potential liens against the property (this is rare, but potential liens could be for personal property taxes, state and federal tax liens, child support liens, etc)
Prepare your closing documents for your signatures
Prepare your estimated closing statement allocating all of the costs in the transaction
Acts as a neutral "bank" for holding the buyer down payment funds and closing costs
Meets with you in person to sign and notarize your closing documents 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)
Request your loan payoff information and authorization (if applicable) to organize its payment
Provide 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 record the grant deed and deed of trust at the County Recorder's Office in Redwood City on our close of escrow date
Wire you the proceeds from your sale to your checking account (please note, if title to the home is held in a trust, proceeds can only be wired to a bank account held in the name of the trust).
What about the initial deposit and buyer funds?
The buyer’s initial deposit will be wired to the title company typically within one business day of offer acceptance. The amount is usually 3% of the purchase price. The buyer will wire in the balance of their down payment and closing costs no less than several days prior to closing.
The Estimated Closing Statement
Approximately 5 to 7 days before closing, the escrow officer will prepare the final closing documents in anticipation of closing. We will make sure to review this for accuracy and then send it to you as well for your review. This statement will include several items, most of which are the property taxes, your loan payoff if applicable, and commission. Later in this post I’ll share more signing your closing documents.
Property Taxes
You will pay in advance the property taxes prorated to reflect our date of close but the difference you have prepaid until the end of the current tax period will be credited to you. For more detail about property taxes in San Mateo County, check out our post about it.
San Mateo County Transfer Tax
This tax based on the Sale Price ($1.10 per $1,000 or $0.55 per $500) is collected by the county and is paid by the seller. For example, if the sale price was $2 million, then the transfer tax the seller would pay would be $2,200.
City Transfer Tax
San Mateo and Hillsborough have an additional tax within their jurisdictions, also based on the sale price. San Mateo has a (hefty) tax of $5.00 per $1,000, while the City of Hillsborough charges a rate of $0.30 per $1,000. This tax is usually split equally between the buyer and the seller.
Loan Payoff
Payoff of loan in Seller’s name
Other Items
The required natural hazards report (NHD) is typically paid by the seller as part of closing, since the company’s providing the reports don’t require payment up front or charge more for the delayed payment through escrow.
Compass Concierge
If you’ve used Compass Concierge to receive an interest free, short term loan to help you access funds to prepare your home to go on the market, you can pay it back once your home sells through escrow.
Commission
The commissions to the listing agent and to the selling agent (buyer agent) will be listed on the closing statement.
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, you’ll want to ask your agent or escrow officer for clarification. It is possible that 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. Sometimes lenders may have delays causing the closing date to be extended, through no fault of the buyer. Often we will see delays of one to five days. While this is not good - and disappointing - it does happen.
At the very bottom of the closing statement, there will be an estimate for the amount of cash you will receive at closing.
The Closing Process
You will need to contact the utility companies to shut off services effective as of the date of close of escrow date or just before. For homeowners insurance, it will need to be canceled as of the close of escrow date. We do not recommend you call to cancel your policy far in advance of closing, as if there was a slight delay in the closing date due to the buyer's lender for example, we would not want your home to be uninsured for a day or two until closing. So, ideally you can reach out to your insurance carrier the day of closing to cancel your policy.
About a week prior to closing you’ll schedule a closing appointment with the title company. 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. Each seller must present a valid driver's license or another form of state or federal issued identification with them.
Your funds will be wired to your bank account on close of escrow day. However, if title to your home is held in a trust, your bank account must also be held in the same name as your trust; funds cannot be wired to a bank account held in just your name.
Can buyers visit during the escrow period?
During the escrow period, the buyers may wish to return to measure for furniture, get any estimates or meet contractors, and complete their final walkthrough prior to closing. This final walkthrough allows buyers to view the property one more time before the transaction closes to confirm that the property is in basically the same condition it was in when the offer was accepted. The buyer is not obligated to do a final walkthrough, and it is not a contingency of the sale, though the contract allows for them to do so. We will coordinate any visits that take place during the escrow period.
Do I need to be somewhere or do anything on the day of closing?
Once you sign your closing papers, 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 your home is sold!
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