The Escrow Process

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.

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!

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 the buyer for your home is obtaining a loan for the purchase, the lender will have to conduct an appraisal on the property. This is done by a real estate appraiser who is selected by the buyer’s lender. The appraisal is a very important milestone in the escrow process because the appraised value of the property is a contingency for the buyer, and they can cancel if it does not come in at or above value. 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) + the down payment of $17,500, which would total $475,875, leaving the buyer $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 buyer and request that they come up to the asking price, but they are not obligated to do so.

This is another point in escrow where things tend to fall apart. It never hurts to ask, but depending on the buyer, the market, and the amount of interest on the property, the buyer may not be willing, or able, to come up in price. If the buyer is unwilling to come up in price due to a short appraisal, you have two options:
A) Lower the purchase price and move forward with the purchase.
B) Leave the price as is and let the buyer cancel escrow using their appraisal contingency.

I have come to terms with the buyer, what happens next?
Once you have come to terms with the buyer, having negotiated any and all repairs, credits, time frames, etc, and have removed all contingencies, our focus turns to emptying the property of all personal belongings. 

By this time we are in the final days of escrow, waiting for the buyer to get full loan approval. Once the buyer has full loan approval, the loan can be funded, and escrow will receive your proceeds.

Once the proceeds are in escrow, it is usually no longer than 24hrs before the new buyer’s grant deed is recorded at the county office, officially making them the new owner, at which point you receive the proceeds from the sale. 

The End!