BUYING A HOME IN CALIFORNIA

The San Francisco area has been documented as one of the most expensive areas in the United States for buying a home. Prices in Palo Alto, for example, begin at $650,000 for a small house in need of repair, on a small lot. Larger homes, and those in the certain areas of the city, cost much more. Even condominiums are expensive, and one might be discouraged about the prospects of purchasing a home. However, Stanford provides excellent housing assistance for faculty and senior administrators.

The procedure for purchasing a home in California is relatively simple, but it does vary considerably from other parts of the United States. Most buyers who utilize the services of a reputable real estate firm do not use lawyers. The brokerage fees are routinely paid by the seller, but in California an agent can declare that they are working exclusively for the buyer, even when the seller is paying the fee. Standardized forms are used and the buyer's real estate agent, in consultation with the buyer, writes up the contract, presents it to the seller, and guides the buyer through the escrow process (described below.)

THE DEPOSIT RECEIPT

The deposit receipt is used to convey your offer to the owner of real estate. It usually will be a standard form and will contain all information pertinent to the transaction. Once completed and signed by all interested parties, the deposit receipt constitutes a valid contract, so care should be taken with this procedure. The deposit receipt is several pages long, and your Realtor will explain each section to you.

The amount of deposit should be large enough to convince the seller that you are a serious buyer. One percent of the asking price would generally be a minimum, but the standard in this region is 3% of the selling price. The deposit check should be made payable to the escrow or title company, usually chosen by the party (seller or buyer) who is paying for the escrow. The escrow company handles all monies involved in the transaction.

Your deposit receipt will list certain contingencies. These contingencies should protect you while at the same time not be so restrictive that the owner will not accept them. Some standard contingencies are:

        1. Financing (Mortgage)

        2. Termite Inspection

        3. Building Inspection

        4. Approval of all disclosures

        5. Approval of all reports

        6. Approval of the Preliminary Title Report

Be warned, however, that in the highly competitive local market it is not uncommon for buyers to forego all contingencies to make their offer more acceptable for the seller. All things being equal, a seller will always prefer a non-contingent offer to one with contingencies. You should discuss this with you agent to make sure you understand the ramifications of proceeding with this strategy and how to minimize your risk should you decide to do so.

ESCROW:

Real Estate transactions in California are closed by escrow officers, rather than through an attorney. The Realtor usually opens escrow for the buyer and seller with a reputable title company. The seller then deposits their papers with the escrow holder, and the buyer deposits those funds necessary to complete the transaction. If a new loan is involved, the

lender funds to the escrow as well. The escrow officer is authorized by mutual instructions from the buyer and the seller to disburse funds at the close of escrow. And, the title department will research the title and guarantee good issue Title Insurance upon closing the escrow.

The escrow officer is a completely neutral and impartial third party. The escrow is confidential and only principals to the transaction are entitled to see the escrow instructions, which cover all items involved in the transaction (purchase price, closing date, pro-rations, insurance coverage, etc.) The use of an escrow company enables the parties in a real estate transaction to deal with each other with less risk since the escrow holder acts as:

        a) custodian for funds and documents;

        b) clearing house for payment of all demands

        c) an agency to perform the clerical details for the settlement of the

            accounts between the parties.

Upon completion of the escrow (when everything has been deposited to enable the carrying out of instructions) the deed is recorded at the county office, all funds are disbursed according to the signed instructions from both parties, and the seller receives the net proceeds of the sale. In California all the documents are signed prior to the close of escrow, and escrow is considered "closed" (title transferred to the new buyer) upon

recordation of the deed.  It is not necessary to be present at the actual close of escrow.

The escrow company's fee is usually paid by the buyer in San Mateo County and by the seller in Santa Clara County, and is on a sliding scale based on the purchase price of the property. The title company issues title insurance.

REAL ESTATE TAXES

Real estate taxes are billed once per year for the period covering July 1 through June 30 of the following year. Most people pay in two installments, one in the fall and one in the spring. The amount of tax is based upon the fair market value at the time of purchase (usually construed to be equal to the purchase price, but with rare exceptions.) It is generally estimated to be 1.25% of the purchase price of the house, although it may vary somewhat due to additional fees and assessments. The amount that taxes can increase each year is strictly limited, and cannot exceed 2% per year. One unusual effect of this system is that neighbors with essentially identical houses may be paying dramatically different tax amounts, depending upon when they purchased and how much they paid for their house. In the right circumstances, elderly residents who want to downsize when they have outgrown their homes can transfer their old tax base to their new home.

CLOSING COSTS   

In Addition to the cost of the house, there will be additional charges called "closing costs". Many of these are lender fees but some are title and escrow fees and some municipalities also have a city transfer tax that is shared between the buyer and the seller. There may be additional expenses. It is usually best to have the lender calculate the approximate closing costs.

When you bring funds to the escrow company to complete the transaction, they must be either wired to the title company or they must be presented as a money order from a California bank. Failure to follow this procedure could result in delay of the closing date.

One last word: If you are from the east coast or some of the other regions in the country, "closing" may have a difference connotation than it does here. In northern California, the buyers and the sellers sign their documents at different times, but always before the close of escrow. In fact, lenders will not fund until the title company can document that the sellers have signed, so this must take place at least the morning before escrow is due to close, but usually a week or more earlier. Buyers also must sign ahead. Their signed loan documents are usually then returned to the lender for a final review before the lender will fund the loan. The morning the escrow is due to close, assuming all the required documents have been signed and all required funds are in escrow, the title company brings the recordable documents, including Grant Deed, to the county recorder's office. The transaction and documents are then entered into the official county records and confirmation of this fact is wired to the title company later the same day. At this point, escrow has "closed" and you are now the proud owners of your new home!