The Escrow Process

The escrow process will vary depending on the details within the Residential Purchase Agreement (RPA) and Counter Offers, if any. Therefore, it is very important to understand and make note of the working timeframes, such as contingency periods and any inspections we plan on conducting for the property. This is the final step in the buying process or selling process!

Opening escrow is an exciting time! All of the work we have put into your home search has finally resulted in an accepted offer and this calls for a small celebration! So what can you expect now that you are in escrow? We have exclusive access to the property for our inspections and investigations to ensure we know exactly what you are buying. As your agent, our responsibility is to guide and protect you throughout the escrow process, explaining all paperwork and reports to arm you with the necessary information that will allow us to make confident decisions!

Below you will find a series of common questions most buyers ask during escrow. We have organized them chronologically to give you a sense of what escrow is like from start to finish.

Table of Contents

Starting strong is good. Finishing strong is epic.

Robin Sharma

Learn the buying process, start to finish!

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Opening Escrow

Our offer just got accepted. What do I do now!?
Per the standard RPA timeframes, which are shown below, the first thing you will need to do after your offer is accepted is submit your Earnest Money Deposit (EMD) to escrow. This deposit must be in escrow within 3 days of acceptance. Otherwise, the seller has the right to cancel escrow and move on to another buyer. Instructions for your deposit will be sent to you from escrow as part of your opening packet.

 

What important dates should I make note of during escrow?
Aside from submitting your EMD to escrow, contingency dates should be noted on your calendar.

For this example, we will be using the standard time frames that come in the RPA and a 30 day escrow:

– EMD: 3 Days
– Inspection Contingency: 17 Days
– Appraisal Contingency: 17Days
– Loan Contingency: 21 Day

What happens if I do not submit my EMD in time or miss a contingency date?
As with the rest of our contingencies, the seller has the right to cancel escrow if we breach contract. However, the seller cannot automatically cancel the transaction if we miss a contract deadline. In order to cancel, the Seller must submit a Notice To Perform, which is a form that is signed by the seller informing the buyer that they are in breach of contract. The form states: “SELLER hereby gives Buyer notice to, as applicable, remove the specified contingencies and take the specified contractual action as needed.” This form would give the buyer 48 hrs to perform the requested action. If the buyer has failed to make the requested action, the seller has the right to cancel the escrow due to breach of contract.

None of our contingencies are removed automatically when the time period is up. In order to remove a contingency, we must submit a Contingency Release form that is signed by both parties acknowledging which contingency is being removed.

Inspections & Repairs

What kind of inspections should I conduct on my potential new home?
When it comes to inspections on your potential new home, we should investigate anything and everything that may be a concern to your safety, health, and or lifestyle. This includes obvious things, such as the condition of the home itself and the neighborhood, but also less obvious things such as sewer lines, special taxes, and any nearby natural hazards.

Typically, we recommend starting with a standard Home Inspection. This inspection will provide us with a detailed report of the current condition of the home. If the home inspector discovers some areas of concern and recommends further investigation, we should definitely conduct those investigations. A detailed list of all the recommended inspections can be found on the Buyers Inspection Advisory, which is typically the last page of the RPA. It is entirely up to you as the buyer to determine what inspections you want performed on the property.

I have completed my inspections, what happens next?
After all investigations and inspections have been conducted, we can determine what, if any, repairs or credits we will be requesting from the seller. This is done with a Request For Repairs form that is sent to the seller. It is in these negotiations that escrows tend to fall apart due to buyer and seller not coming to an agreement. Your leverage, or lack there of, will depend on a number of things, such as the market, how much interest the seller had in the property, etc.

The seller is not willing to do any of my requested repairs or provide a credit. What are my options?
When a seller is not willing to make any repairs or credits, you have two options:
A) Take the property as-is and move forward with the purchase.
B) Cancel escrow using your inspection contingency and have your EMD returned.

 

The seller has agreed to my request for repairs, how do I ensure they are completed?
When a seller agrees to make repairs, they are required to have said repairs completed prior to the close of escrow. This is verified with a final walk through of the property that takes place towards the end of escrow.

Appraisal

What is an appraisal and how does it affect my transaction?
A real estate appraisal, property valuation, or land valuation is the process of developing an opinion of value for real property. If you are obtaining a loan for your purchase, your lender will have to conduct an appraisal on the property. This is done by a real estate appraiser who is selected by your lender. The appraisal is a very important milestone in the escrow process because the appraised value of the property will directly translate to how much the lender will be willing to finance. There is never an issue when the property appraises for higher than the purchase price. However, if a property appraises for less than the purchase price, it can become an issue.

 

EXAMPLE: A buyer is purchasing a home for $500,000 using an FHA loan with a 3.5% down payment of $17,500. In this example, the lender is covering 96.5% of the total purchase price. If the property appraisal comes back at $500,000, the lender will finance $482,500 ($500,000 x .965). This is ideal, as the difference between the amount financed and the purchase price is the 3.5% down payment of $17,500 which equals the total purchase price of $500,000.
However, if the property appraisal comes back at $475,000, the lender will only finance $458,375 ($475,000 x .965) + your down payment of $17,500, which would total $475,875, leaving us $24,125 short of the purchase price.

What happens if my appraisal comes in short of the purchase price?
As is the case with inspections and investigations, we can try and negotiate with the seller and request that they lower the asking price to the appraised value. This is another point in escrow where things tend to fall apart. It never hurts to ask, but depending on the market and the amount of interest on the property, the seller may not be willing to drop their price. If the seller is unwilling to lower their price due to a short appraisal, you have two options:
A) Pay the difference out of pocket and move forward with the purchase.
B) Cancel escrow using your appraisal contingency and have your EMD returned.

Loan Approval, Funding, Recording, & Closing

I have come to terms with the seller, what happens next?
Once you have come to terms with the seller, having negotiated any and all repairs, credits, time frames, etc, our focus turns to the lender. Your lender, who has been diligently working on getting your loan packaged since day one of escrow. 

The loan is often the most time consuming component of the escrow process. It is the reason escrows require 30 days. and ready to submit for approval and funding, and often lenders need the full 30 days to get you to the finish line. A great lender will do their part to make sure they uncover any potential issues upfront so we do not run into any surprises at the end when its time to close. Once your package is complete, it will get submitted to an underwriter to review your file. Once they give it the okay, you have formal loan approval! 

What happens once I have Loan Approval?
Once you have loan approval, you will sign loan documents and Grant Deed then wait the required 3 days to allow your loan to fund. Once the loan has funded, the Grant Deed can be recorded, at which point you are officially a home owner!

What happens at closing? 
Closing day typically involves lots of smiles and photos for everyone involved! Escrow will disburse closing packages for each party, along with a set of keys for the new owner. 

The End!

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