Everyone gets excited when they buy a new home. It doesn’t seem to matter if it’s a first time home buyer, or a seasoned investor picking up another great rental property. We all love feeling like we’ve acquired something substantial, something valuable. And when we do, it’s easy to forget what comes next. However it is vitally important that everyone stays on track and compliant with the contractual terms of sale.
I hear the question, “so… now what?” so often that I’ve created a checklist for a real estate timeline. In most cases you can expect your purchase or sale (depending on which side of the deal you’re on) to go as follows. Of course, there are exceptions to almost every rule. This is pretty reliably what happens and when.
- First, a buyer will deliver an offer to purchase the seller’s home. A serious buyer must include proof he has sufficient cash to close the sale and/or proof of where a loan will come from. Unless otherwise specified, the seller has 72 hours to accept or counter the offer. If he counters it, then his written counter also has the same deadline, and so on, until terms acceptable to all parties are reached. If multiple buyers deliver offers, the seller can counter them all at the same time, asking different terms from each of them. If one of the multiple counter offers is accepted before the others, that buyer is not automatically the “winner”. The seller must still counter-accept. It’s usually a horse race anyone can win. Many times the buyer with the lowest offer sends the highest counter offer when they know they are competing for the deal.
- Then, within 72 hours, escrow must be opened for the winning buyer. Think of “escrow” as Switzerland, a mandatory, neutral, third party who holds all things of value, like the ownership deed to the seller’s property and the buyer’s cash, until all parties agree that their terms are met. Then escrow executes the exchange of money for property. NOTE: Escrow can’t do anything outside of the exact terms within the written purchase contract, unless all parties agree to a change in writing. This includes cancelling the escrow because someone is not holding up their end of the bargain. It’s terribly important that everyone communicates clearly, maintains a level head, and works to avoid conflict whenever possible.
- Escrow sends all parties copies of their escrow instructions to review and approve. Buyers will get additional legal disclosures and reports. And escrow sends a deed to the seller to execute for later conveyance.
- The buyer and seller leap into action to get their respective duties performed according to the timeline. The seller has 7 days to disclose all that they know about the home to the buyer. And the buyer has 17 days to complete all their investigations of the property, including reviewing what the seller has disclosed. A smart buyer will hire professionals to inspect the property for him. NOTE: “Contingency” is a condition which must be met in order for the contract to move to the next phase. California is a “Caveat Emptor” state. So buyers are allowed a “contingency” period to conduct investigations into the property. If something unexpected is discovered during this “contingency period” the buyer is allowed to cancel the agreement or negotiate additional terms. It’s also important to know that these contract deadlines are calendar days NOT business days. So if an offer was accepted on September 1st and the buyer has 17 days to remove all but his appraisal contingency, then this must be done by September 18th.
- The buyer’s lender must also appraise the property, ensuring it is acceptable collateral for their new loan. This appraisal fee is one of few expenses the buyer must pay in advance. The standard contract allows a buyer 21 days to remove the appraisal contingency.
- When the buyer has completed investigations, he then either requests the seller to repair issues he discovered and determined to be unacceptable. The seller may refuse or agree to make repairs. If an agreement is reached, the buyer removes his physical inspection contingency in writing. Once this is done, it is irreversible. NOTE: If the seller has agreed to make repairs for things discovered by the buyer, these are typically done after the buyer has removed all contingencies and the seller has reasonable assurance that the buyer is “all in”. Repairs generally must be done before escrow closes.
- The buyer does a final walk through of the property within 5 days of the closing, to ensure it is still in the condition in which he agreed to buy it and that any agreed repairs have been completed.
- The buyer signs his closing and new loan documents with a notary and wires his own funds to escrow to cover costs not covered by the new loan.
- The buyer’s lender wires the new loan funds to escrow after having reviewed and approved the signed new loan papers.
- Escrow sends the sellers Grant Deed to the County Clerk Recorder’s Office to record transfer of ownership of the property to the new buyer. In Orange County, this is done electronically. So recording is commonly confirmed on the same day, unlike the 1-2 day day delay experienced in other areas. NOTE: Once the Clerk Recorder confirms the recording of the sale, escrow is “closed” and escrow will disburse all funds to the appropriate parties within 72 hours.
That’s it. Easy, right? Trust me, there are a LOT of moving parts. Call me if you want my help ensuring a smooth closing. It’s what I’ve done for a few decades now. I’m good at it.