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Dec. 27, 2006 - Offer Accepted!!

The Escrow Process starts pretty much as soon as the offer is accepted, better term for that is as soon as the offer is signed around.  Most often the offer goes back and forth a bit, and the "Time is of the Essence" dates start at the last initial date.

While it is true that this even begins a HUGE "to do" list, if you have the right professionals in place, most of that To Do List is not YOURS to do.

Seller:  Start packing the things you are not going to need between today and when you move out.

Buyer:  Order the Home Inspection and stick with your lender like glue until the lender needs nothing more from you to produce the loan docs.

Generally the agent for the buyer will open escrow for both the buyer and the seller.  The agent for the seller will put the property as STI or Pending, relieving the seller from "calls to show".  Many things take place in the "30 day" escrow period, but for the most part the BIG to do list is filled with things that the professionals need to do, and not things that the buyer and seller need to do until the week before closing.

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Mar. 22, 2006 - The Appraisal in the Home Purchase & Sale Process

While the buyer is paying for the appraisal, they are paying for it as part of their loan costs. The appraiser is hired by the lender and works for the lender and his/her purpose is to inform the lender. I just saw an appraisal of a property I know would sell at about $950,000, come in at $750,000. The appraisal was for divorce purposes and it was a unique, difficult to value property. Appraising is an artform, not a science. There is no one absolute number pointing to what a home is worth. 

The reason there is an appraisal is in case you do not make your payments and the bank has to foreclose. If you are buying a house for $500,000 and you are putting $200,000 down, frankly, the appraiser doesn't have to agonize over the process. The bank is clearly going to be able to sell it for the $300,000 they lent you to buy it. Now if you are putting zero down, the appraiser is on the line in the event you foreclose and the bank can only sell it for $450,000. 

You need to determine what the home is worth. It's great when it appraises and everyone loves those few times when it appraises for more than the sale price (except the seller).  Different appraisers will get different answers. Appraising for different purposes when the house is not being sold, like to value for an estate or divorce, often will produce different results than when the appraisal is for a home purchase and ordered by the lender. 

THE SELLER NEEDS TO BE AWARE OF THE FACT THAT THE SALE CAN FALL APART IF THE PROPERTY DOES NOT APPRAISE. 

THE SELLER'S AGENT WILL KNOW IN ADVANCE WHETHER OR NOT THIS MIGHT BE AN ISSUE, DEPENDING ON THE CREDENTIALS OF THE BUYER, AMONG OTHER THINGS.

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Feb. 2, 2006 - "Ardell's Anatomy of a Real Estate Transaction"

 Outlining this process is a tremendous undertaking.  It will also be a continuous "work in progress", so please feel free to comment on anything you didn't understand or that you feel should be added.  

 DISCLAIMER:  THIS WAS WRITTEN BY ARDELL DellaLoggia AS A GUIDE TO THE REAL ESTATE TRANSACTION, FOR YOUR CONVENIENCE!  YOUR SPECIFIC CONTRACT TERMS WILL OVERRIDE AND SUPERSEDE ANY MENTION OF TIME AND TERMS HEREIN!  READ YOUR CONTRACT.

 I expect that the reason something as all inclusive as this doesn't exist is due to the exposure it places on the writer.  But after all of these years in the business, I feel there should be one place that pretty much says it all.  So here it is.  I'm old enough to take the risk of sharing!  I can always work at Nordstrom's .  

I have color coded it so that the buyer and seller can glance through and see what they specifically need to do.  If you want to follow the steps in order, go the the bottom and work your way up.  I am going to start from the end and work backward, as I am finding that most people understand Phase 1 (and so stay in Phase 1 too long) better than Phase 3.  So let's go with the tried and true, "beginning with the end in mind" principle of highly effective people. 

I find that there are three distinct phases to a real estate transaction from "signed around"/acceptance to close of escrow.  Since there is so much material here, I am breaking it down into it's separate phases so you can concentrate on the phase you are in throughout the process.  The last thing on the list is the first thing you should do to insure that the last thing on the list happens on time!  That being, moving in to your new home. 

PHASE 1 is the "Due Diligence" period for the Buyer and filled with time sensitive issues where "Time is of the Essence".  PHASE 1 should be fully completed within 7 to 10 days of "offer acceptance/signed around" date, in a 30 day transaction for everything else to follow in a timely manner.  If PHASE 1 is extended, meaning the buyer is taking too long to do their "due diligence", the entire transaction becomes riddled with problems.  At the end, everyone starts blaming these problems on one another, when in fact, it all reverts back to the buyer not understanding how very important it is not to think that they have 30 days or 25 days or even 20 days to do all of the things they need to do to get the loan in place and release the property from the due diligence period.  If you are still talking about the home inspection on day 15 or still trying to decide which type of loan you want on day 20...you are not likely going to close on time.  Keep that in mind when reviewing the steps below. 

PHASE 2 is the time for the buyer and the seller to pretty much leave the agents and the lender and escrow company alone, except to respond to their calls and questions, so that they can do their "work".  The buyer should order their hazard insurance policy and give the insurance company the escrow info so the insurance policy and bill can get to the closing agent.  This is a good time to go pick out your washer, dryer and refrigerator, check out your cable TV options, contact the utility companies (both buyer and seller), consider if you want to transfer the seller's alarm company contract to the buyer.  The agents are working with escrow and the lenders during this time, and the buyer and seller are off packing and hiring movers and the like.  If PHASE 1 is done in 10 days then PHASE 2 is the next 10 days and PHASE 3 is the last ten days of a 30 day escrow.  If only it ever worked that way in real life! .  Hopefully by taking the time to write this lengthy piece, more WILL happen that way.

 PHASE 3 starts when the Loan Documents come in and ends when they buyer gets their keys to their new home. 

We will assume a 30 calendar day closing, which is the norm for the Seattle area. We will further assume that this is a purely residential transaction and it is not an investment property sale or purchase. To simplify things, I will further assume that the buyer in this example is currently renting to avoid the domino effect of monies transferring from one closing to another except on behalf of the seller.  But keep in mind that the higher the sale price, the more likely there are 2, 3, or more closings all interdependent on one another.  The Jones' can't close on their new home until they have the money from the sale of their home. The Smith's can't close on their new home until they have the money from the sale of their home, and so on and so on. 

Please, keep in mind that often, many people's daily lives are affected by the real estate transaction.  The stress of timing the hiring of movers and packing and getting the kids to school and going to work during this whole things is quite immense.  Too often both agents and consumers forget that this is not "a deal".  "It" is about people moving from here to there.  The more children and pets involved, the more difficult this becomes.  So while I outline this as if it is a 30 day "business deal" remember poor John, Jean and Judy trying to get to work and school and find their toothbrush through all of this.  Being "a day late and a dollar short" at the end of escrow may seem like just a blip to agents who write up an extension addendum, extending closing out a day or two or more.  But how does that  change in the closing date affect everyone who hired movers, and have most of their things packed?  OK enough soap box.  But please keep in mind that we are dealing with people's lives and not just a "piece of real estate". 

Color coding: escrow company , buyer's agent, buyer, seller's agent, seller, lender, title company 

PHASE 3:  

Buyer(s) move into their new home!! (See "DOCS ARE IN"! below)  The earlier the Loan Documents arrive at Escrow, the more likely you will be able to move in on the date planned. (NOT USUALLY ON THE DAY OF CLOSING AS CLOSING 'HAPPENS" AT 5-6 P.M. MOST OF THE TIME)

  • Escrow Company sends (usually by courier) final closing statements showing both buyer and seller sides of the HUD 1 to seller's broker and buyer's broker  with commission checks.
  • Escrow Company mails final closing papers to buyer with a check if he has some "change" coming from amounts paid to escrow. 
  • Escrow Company mails final closing papers to seller with a check for the net proceeds from the sale.  (More often the seller's money and closing sheet is wired and faxed to another escrow company for the seller's home purchase, or the seller picks these up at the escrow office.)
  • Escrow Company cuts checks to pay for final bills  including Insurance Policy, Warranty, repair bills, Brokers, seller and buyer. 
  • Buyer's agent arranges to transfer keys, garage door openers etc to buyer once property is recorded.
  • Seller's agent arranges to transfer keys, garage door openers, etc to buyer's agent.
  • Escrow Company calls all parties as soon as they have "recording numbers" from the County indicated the transfer of the property from the seller to the buyer/new owner of record. this usually happen late in the day between 4:30 and 5:30.
  • Escrow Company releases the transaction for recording at the County.
  • Lender reviews the signed loan documents, funds the loan and gives the go ahead to escrow to release the transaction for recording.
  • Escrow company faxes or emails the signed loan documents to the lender for final review.

Buyer goes to the Escrow Company to sign the loan documents and final closing papers.  (Usually a business day between 8 a.m and 5 p.m.)  There are very few exceptions to the rule that the buyer must go to the escrow company, during normal business hours, without much advance notice.  So be prepared.  Most escrow companies will not schedule the buyer's appointment to sign until they have the loan documents in hand.  Buyer will generally need to bring a CASHIER'S CHECK payable to the Escrow Company and a Photo ID, usually a Driver's License or Passport to the signing appointment.  The HUD 1 review (below) will tell you how much you need to bring to closing, but have your buyer's agent review the numbers with you before you go to the bank to get a check. 

  • Buyer's Agent receives a fax copy of the HUD 1, estimated final closing numbers and reviews with buyer for accuracy and contacts escrow with any corrections.  If buyer is going to do a "final walk thru" (not customary in the Seattle area), the agent can review the HUD 1 at the property during the final walk thru and before the buyer goes to sign the final closing papers.

Seller moves out - It is difficult to ascertain when in fact the seller is to move out of his home.  If the loan documents are in, it is safe to assume that the transaction is going to close.  If it is a zero down loan with closing costs rolled in, it can be hairy up to the end.  If the buyer has a large downpayment and excellent credit scores, waiting for the docs is not necessarily as important.  If the seller needs the money from this sale to close on his new home, often the seller will have "possession plus three" so he doesn't have to move anything into storage waiting for the go ahead from the County on his new home so he can move out of his current home and into his new home. This is why it is important for everyone to understand that a real estate transaction is not purely a business transaction.  When you purchase a home, there is often someone living there, children going to school and adults going to work each day movers to be hired in advance.  Moving out of your home is no easy feat, yet often buyers simply focus on their end wanting the keys to get in, when the seller often cannot leave until they have the money from the sale to close on their new home.  Every situation is different, but everyone should remember that unless you are buying a vacant house, there are extreme considerations on the seller's end regarding leaving their home.  For instance, if the buyer was not absolutely positive that the loan was going to "go through" until the last minute, how could the seller possibly have moved out?  The later the DOCS arrive at closing, the less likely the seller will be able to move out on time and the buyer move in on time.  See "DOCS ARE IN!" below.

  • Seller signs his final closing papers, Deed, etc. Unlike the buyer, the seller papers can be signed as a "mail away" and if buyer's lender has nothing for the seller to sign, then the seller can often sign much earlier in the transaction.  Some escrow companies wait until the loan documents come in to see if the buyer's lender has anything for the seller to sign before arranging the seller's signing appointment, some to not. 
  • Seller's Agent receives a fax copy of the HUD 1, estimated final closing numbers, and reviews with the seller for accuracy.
  • Escrow receives Loan Documents (DOCS) and prepares the HUD 1 (estimated final closing numbers) and Buyer and Seller final closing paperwork.  Often buyers think that they can go to escrow and sign the minute the DOCS arrive at escrow.  The Escrow Company has many things to do now that the DOCS have arrived, that they couldn't even start before this, including the very important numbers on the HUD 1.  It is not in anyone's best interest to rush the process as soon as docs are in as you miss the opportunity to review the final closing numbers in advance of signing.  A step too often missed.  Review the numbers BEFORE the signing appointment with your agent.  Doing it all at once at signing, is not enough time to fully review the HUD 1 and causes questions after the fact, which most times is too late.
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  • The Lender sends the Loan Documents (DOCS) to closing. Note: DOCS have an expiration date.  Ideally they should come in 7 days before closing and expire in 10 days. 

***This one little line is THE MOST IMPORTANT PART OF ANY REAL ESTATE TRANSACTION INVOLVING FINANCING!  And yet, I purposely put it there as quietly as it happens, no fanfare, no bold lettering, no all caps, to notice to all parties.  "Docs are in" - A quiet little event between the lender and escrow that is clearly THE BE-ALL-END-ALL OF EVERYTHING!***  OK, I'll assume you are paying attention here and stop shouting.  If the docs come in the day of, or the day before, closing, and they often DO, the whole process is compromised.  The seller is nervous that the buyer's loan isn't going to happen at all, so hasn't started packing yet.  The Buyer is trying to figure out what day he needs to take off from work to go to escrow to sign the papers because he has to give work some notice, and the Escrow Company can't/won't schedule the appointment until they see "THE DOCS".  You can't review the estimate of final numbers and make corrections in advance, because the final numbers can't be prepared until after the DOCS are in.  By stalling the loan process at the beginning, thinking you have 30 days, the entire transaction is compromised with DOCS arriving too late for anyone to react appropriately.  So, here's how it is.  If you don't finalize your loan and select the loan program in PHASE 1, giving the lender time to approve the loan and get it through underwriting and prepare the Loan Documents during PHASE 2, then all hell is going to break lose in PHASE 3...and often does.  Worth mentioning  

Buyer (no anyone else) orders a one year hazard insurance policy (this is not mortgage insurance) Lender will require a one year paid up fire and hazard insurance policy to close escrow.  Often the payment is made through escrow, but make sure you have the coverage you want and need.  If you are buying a condo, you may not need your own separate insurance to close escrow, but review the HOA's Declaration of Insurance page with an insurance agent.  You need a "supplemental policy", even though it is not an requirement to close escrow to cover your obligations and to minimize the deductible amount down to a more reasonable level.  Most HOA policies do not cover everything that can happen to you in your condo and they also have very large deductibles from $2,500 to $10,000.  The Earthquake deductible is VERY high, and much higher than that on the Master Policy.  Know your insurance coverage whether you are buying a single family residence or a condo.  Make sure you are covered and buy insurance that is adequate.  Don't let someone else handle this part for you.  You will be the only one hurt when a problem comes around and you have insufficient insurance coverage, so get personally involved in your insurance and do not drop the ball at "the minimum needed to close escrow". 

 PHASE 2 

The seller is in Phase 2 almost the whole time.  Most of the seller's hard work is done by the time the property goes on market, and during the time it is being shown.  Once the seller accepts an offer, mostly he is packing and getting ready to leave.  He calls the utility companies and tells them when he is closing, he stops his newspaper, packs (no easy feat, I do not mean to make light of that in any way.)   He signs his closing papers, sometimes at a escrow, but sometimes anyplace where there is a notary who can check is ID and acknowledge his signature.  Mostly the seller spends the 30 days worrying if the buyer is going to close.

 The buyer when in Phase 2, is waiting to hear that the DOCS are in so he can make his signing appointment.  He gets his hazard insurance in place and has the insurance agent get that info to escrow.  He makes sure the lender doesn't need anything from him besides the W-2s and bank statements he has already submitted in Phase 1.  Sometimes the lender has "conditions that need to be met before the Loan Documents can go to escrow.  The buyer should be asking the lender when DOCS will be at escrow and making sure they get there early enough to close on time, a 4 business day minimum for day of closing...7  calendar days is best. 

The seller should be making arrangements to move out before closing, if possible and the buyer should be lining up a mover a day or two after closing.  The day of closing is just a phone call at 5:p.m. normally.  So don't plan to move in on closing day.  Often the Buyer Agent can't get the keys to get into the property until after the phone call saying "Property has recorded" from escrow.  So often you don't get the keys until the following day.Keep this in mind when hiring people to come to your new home and don't cut it too close. 

PHASE 1

  • If you are buying a condo, you have a very important extra step in PHASE 1, and that is the review of the RESALE CERTIFICATE.  This is a big stack of stuff delivered by the agent for the seller to the agent for the buyer.  It includes a form called "the resale certificate" completed by the HOA Manager and a stack of items noted in the Resale Certificate.  You must sign that you received the packet immediately.  You then have 5 days to review the documents and cancel the transaction if you do not like what you are seeing.

If you are buying a single family home, you are finished with phase one when the inspection contingency is released and the appraisal is done and OK.  Don't worry about the price it appraises for, it does not mean what you think it means.  It either appraises or it doesn't.  If it does, often we don't hear a thing unless we ask.

Worth noting here.  You pay for the inspection at the time of the inspection and you pay for the appraisal if the work is done by the appraisal.  In a normal transaction of 30 days in length, you may be paying about $800 for the appraisal and home inspection, even if you decide not to buy the house after the inspection.  If you rush the inspection and response, you might be able to beat the appraiser and cancel it. You cannot instruct the lender not to order the appraisal unless you made that a condition in the contract.  "Appraisal will not be ordered until after the home inspection contingency is waived".  That is rare, but if that is your intention, then you must advise your Buyer's Agent when the contract/offer is being written.  Since applying for your loan within 5 days is a condition of the contract, we (seller's agent and buyer's agent) would expect to hear from the appraiser for access within 7 days.  10 at the latest. 

People often ask and think that they automatically get their Earnest Money returned if their loan is not approved by the time needed to close.  If you did not apply on time and that is why the loan is not approved yet, then it is your negligence and you do not get your Earnest Money back.  Also, read your Finance contingency.  It does not necessarily cover you all the way to the day of closing, usually not.  The loan must be denied before the date shown  for you to get your Earnest Money back.  If there is nothing on the blank line, you are covered under the Finance Contingency for 30 days, but often that date is changed.  Make sure you know when your Finance Contingency expires. 

  • The Inspection  -  The Buyer's Agent usually meets the inspector and the buyer at the property and provides access and stays until they lock the door after the inspection.  I stay with the buyer and listen to everything said, but different agents will do this differently.  Today, most inspectors hand at least a summary of the report to the buyer or we have a list of problems somehow before the inspector leaves.  I review this with the buyer on the spot usually so we can look at the items again that are on the list.  When we have the full official report, a form is completed by the buyer and delivered by the Buyer's Agent to the seller.  It either releases the transaction from the Inspection Phase, or it requests something from the seller.  This must be delivered within the inspection time frame, usually the day after the inspection unless the inspection was done very early on in the time allowed.  If the inspection is not done until the last day, then all of this must be done by 9 p.m. on the day of the inspection, even if the full report is not in hand.  So best not to have the inspection appointment on the last day noted in the contingency.  Generally the seller has 3 days to respond to the buyer's request and the Buyer has three days to respond to the seller's response to his request.  Sometimes a 2nd inspection is called for in the 1st inspection.  The buyer then has 5 days to complete the 2nd inspection by a heating company or electrician, whatever was beyond the 1st inspector's area of expertise, and the entire inspection response is delayed accordingly.  This is why it is important for the loan and appraisal to be proceeding.  If you wait until the inspection is complete, there often is not enough time to process the loan and get Loan Documents in early enough for everyone to be able to move on time.
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  • The Lender orders the appraisal.  The appraiser calls the seller's agent to make an appointment to do the appraisal or the Buyer's Agent who calls the seller's agent.  The appraisal should be being done immediately.  When the Listing Agent does not get a call for the appraisal, alarms go off!  Often the lender is not ordering the appraisal because it costs money and if the lender isn't sure the buyer is going to get a loan, he stalls the appraisal.  This fact does not go unnoticed-noticed by the Agents.  Another reason would be that the buyer instructed the lender not to order the appraisal because he is still "shopping lenders" or because he doesn't want to pay for the appraisal until he is finished with the home inspection.  The buyer is not "proceeding in good faith" if he stalls the appraisal process.  No one wants to find out that the property didn't appraise two days before closing!  Remember, an appraisal is done to the lender's satisfaction and is not necessarily a reflection of market value.  It is part of the lender process, not the home buying process.  If the buyer were paying cash, there would be no appraisal unless the buyer specifically requested one and made the offer contingent on the home appraising.  In most cases the appraisal is ordered by the lender as a condition of the loan.

The buyer must apply for their loan within five days of the offer being "signed around"/accepted.  The pre-approval letter you received prior to making an offer is not a formal loan application as you cannot apply for a loan until you have an accepted contract.  If you are positive that you are going to use the lender who prepared the pre-approval letter, then the Buyer's Agent can send a copy of the contract to the lender.  There has been some confusion in the Seattle area, as buyer's agent's often fax a copy of the contract to the lender that was used to produce the pre-approval letter.  The buyer should make an elective choice of lender AFTER the contract is signed around, even if that choice is to use the lender who supplied the pre-approval letter.  This is very important and it must be done within five days of acceptance, with the buyer being the one responsible to get a copy of the contract to their lender of choice, or instructing the Buyer Agent to do that. 

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  • Buyer orders the Home Inspection while the Buyer's Agent is opening escrow.  Remember there are only 52 Saturdays in a year and lots of sales.  Do you want the most convenient time for you, or the best inspector?  Keep that in mind.  The report AND the buyer's acceptance or rejection/requests from the inspection must be delivered by the day in the contract, which should be 5-7 days, 10 at most in a 30 day transaction.  So call the inspector immediately upon acceptance and don't schedule the appointment for the last day you have to respond.  Setting up the home inspection is the most important thing for the buyer to do as soon as you have an acceptance.  Make sure the buyer's agent knows the date and time as soon as you know it, as they will likely need to re-arrange their schedule to be present as well as make the appointment (through the seller's agent) with the seller.   It is their home.  They need to agree to the time and date of the appointment, so make sure your Buyer's Agent knows the date and time as soon as you do.  Confirm it when you call the inspector, though, or that time will "disappear".  To make the appointment, you will need the address and the square footage of the property, and whether it is a condo, townhome or single family residence.  The cost of the inspection is often dependent on the type and square footage, so be accurate.

Earnest Money is Deposited It is the Buyer Agent's legal responsibility to get the Earnest Money Check to where it belongs and for it to be deposited within the legal time set in the contract, which usually is NOW!  Very important.  This is the first legal requirement as soon as the offer is "signed around". Severe consequences for the Buyer's Agent if the Earnest Money check is not deposited.  Buyer's Agent should have received the check at the time the offer was written unless other arrangements were made AND DISCLOSED TO ALL PARTIES in the written offer/contract.

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  • Escrow is Opened by Buyer's Agent by sending them a copy of the "signed around" Purchase and Sale contract and all parties contact info, including Buyer Agent, Seller Agent, Lender info (if known at that time), Title Company name and order #, and buyer's contact info.  Note:  Escrow Company is already pre-set in the Purchase and Sale Agreement.  I strongly recommend that the buyer use the seller's Title Company (as Title has already been ordered when the home was listed), but to select their own and separate escrow company.  You have to do this in the offer!  Too late after "signed around".  Listings will usually say "use seller's choice of title and escrow".  But in reality, the seller should pick Title and the buyer should pick escrow.  But don't lose the house over it .  
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ARDELL DellaLoggia of Sound Realty on Seattle Real Estate process and market including Kirkland, Bellevue, Redmond, Green Lake and most areas around the top of Lake Washington North of Downtown Seattle. Phone: 206-910-1000 - Mailto:ARDELLd@gmail.com

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