Buying a home in California is different. So what else is new. Isn't all of
California different? Well, let's stay away from all
that for the time being and only talk about the home buying process.
First of all, attorneys are rarely used to draw up
contracts or to consummate real estate transactions. Rather, we use escrow
companies. After you've found the home and begun negotiations, you'll begin
hearing about "opening escrow" and "closing escrow". We'll
talk more about escrow further on.
Also, forget about having a final closing meeting.
Very rarely do the buyers and sellers even meet each other.
In California anyone who offers to buy, sell, or lease real property for
compensation must be licensed. There are two types of licenses given by the
state: Brokers and Salespeople. Any broker or salesperson can also be referred
to as a sales agent. It is important to remember that only Brokers can receive
compensation for the sale or lease of real property. Therefore, every
salesperson must work for a broker.
Brokers can also work for another broker. When
doing so, they function as sales agents and not as the Broker of Record. The
Broker of Record is the person who assumes all responsibility for supervising
the sales agents.
Agency is one of the more arcane aspects of real estate law in California. It includes sub-agency, dual-agency and buyer's agency. Agency is in a state of flux at this moment in many parts of the country. Suffice it to say, unless you have signed a contract delineating your agency relationship, the agent you are working with may not owe his primary fiduciary responsibility to you.
This is the first task your agent will perform for you, and it is probably
the least important. Before driving all over, your agent will conduct an
interview to determine if you are ready, willing and able to buy a home. Don't
take this personally, the seller wants to know. Plus, the more ready, willing
and able you are to buy a home, the better price you will get.
It's funny how that works sometimes. We've shown
people the perfect home at the best price and they decided to wait. One day, one
week, it didn't matter. When they finally decided to buy, that house is
invariably gone.
Next, the agent will inquire as to the details of
the home you are looking to buy. This way the agent can bring you directly to
the most suitable homes on the market.
If the first thing an agent wants to do is pop you
in his car, go find another agent. Driving willy-nilly around the county is an
exhausting experience. No experienced agent drives people around without a
qualifying interview first.
You do want an experienced agent, don't you?
Also, a good agent will have you begin the loan
process immediately. We're not talking about getting pre-qualified, we're
talking about getting approved for a loan. This will put you in
the strongest possible negotiating position next to buying with all your own
cash. In today's market, having your loan in place before making an offer
is mandatory. Most homes have multiple offers. Sellers are not even looking at
offers for which the buyer does not have the loan in place.
The buyer is responsible for applying for his loan. When the buyer's loan is
approved and documents are ready for signature, the lender delivers the
documents to the escrow holder, usually a week before the closing date.
The buyer signs all loan documents ahead of the
closing date, and the seller signs the deed a few days before closing. One or
two days before closing the buyer delivers the remainder of the down payment to
the escrow holder.
To avoid delaying the closing, the buyer should
transfer his down payment funds to a local bank well ahead of close of escrow.
Here is where your agent really begins earning his keep. After you have found
the home you want to buy, it's time to make an offer. Offers are always in
writing. There's a saying in California that an offer is only as good as the
paper it's written on. The paper used in California is called a Deposit Receipt.
All details of the offer are entered on this form,
including the description of the property, the price offered, financing terms,
duration of the offer, rights of the buyer to inspect the property, which party
will pay which fees, etc.
Your agent will assist you in setting an opening
offer price by providing a list of homes sold recently similar to the one you
are interested in buying. Along with your offer it is customary to provide a
"good faith" deposit check of at least 3% of the offered price.
Your agent will then present the offer to the
sellers and their agent.
There are two parts to an offer: the price and the terms. Usually you will
offer less than the asking price. If it's a seller's market, meaning there are
many buyers vying for the same property, you may offer more. In any case, there
will more often than not be a counter-offer.
The sellers will counter your offer in writing.
The counter-offer will say, in effect, "I agree with your offer except as
follows: ...(enumerate the changes the seller requests)." The buyer can
respond with a written "counter-counter-offer," and the offers can go
back and forth until there is final agreement, or until one of the parties will
no longer respond.
Once the offer is agreed to by all parties concerned, the agent will take the
written final agreement and the deposit check and deposit them "in
escrow." Escrow will then be deemed open.
The purpose of an escrow is to enable a buyer and
seller to deal with each other without risk. Before title to the property can be
transferred to the new buyer, the buyer must deposit into escrow all monies
necessary to pay for the home. This is most commonly done when the buyer obtains
a loan. Then, the seller must be paid, the seller's old mortgage paid off, and
any other liens on the property must be paid off.
All responsibility for handling funds and
documents is delegated to the escrow holder, a neutral third party, which is
usually a title insurance company or escrow company.
Your title insurance officer can answer many of
the frequently asked questions about title insurance, preliminary reports, and
alternative ways of holding title to property in California.
In a simple transaction, the buyer delivers the
agreed upon funds to the escrow holder. The buyer also instructs the escrow
holder to deliver to the seller the stated sum only after all conditions have
been met, and title is vested in the buyer. Concurrently, the seller deposits
his deed and other documents with the escrow holder, authorizing their delivery
when the buyer has deposited the agreed purchase price. The contracting parties
deposit funds or documents with the escrow holder, for delivery to the
respective parties upon performance of all conditions of the agreement.
Most contracts provide that the buyer may, at his own expense, have the house
inspected by professionals. Typical inspections include pest (termite)
inspection, contractor inspection (includes electrical, plumbing, heating
systems), roof inspection, swimming pool inspection, foundation and soil
inspection.
These inspections may reveal defects which were
not evident to the buyer, and which were not disclosed in the seller's
disclosure statement. Depending upon the terms of the Deposit Receipt, the buyer
may request the seller to either fix the defect, or provide funds so that the
buyer can correct the defect after close of escrow.
Your agent can assist you in choosing competent
inspectors and will arrange their appointments and be present while the
inspections are being conducted.
Some inspections become mandatory by the lending company. Most lending companies
require, at least, a termite and a roof inspection before they will loan on the
property.
In California the title of the property is searched by a title company and a
preliminary report is issued on the condition of the title, for the buyer's
approval. The report would include such information as present ownership, legal
description of the property, any existing liens or unpaid taxes, any easements,
and other covenants, conditions, or restrictions.
A policy of title insurance will usually be issued
at close of escrow. A title insurance policy insures the buyer's interest in his
purchase, and the priority and validity of any loan. It is a contract to
indemnify against loss through defects in the title.
After both the buyer and seller have complied with all agreed-upon terms, the
escrow is "closed," and the deed is recorded with the County Recorder.
The escrow company notifies the agents that the title is recorded and on that
day the property belongs to the buyer. There is no need for a final meeting of
the parties, since all documents had been signed prior to the close of escrow,
and had been delivered to the escrow holder.
Sometimes the seller needs to remain in the
property after the close of escrow; this holding over is handled by a separate
agreement. After the close of escrow the parties will be given a settlement
statement, showing the charges and credits for each party.
The above description covers the customary steps in buying and selling a home
in California. Most California residential transactions are completed without
the assistance of an attorney. However, buyers and sellers who have legal or tax
questions are urged to obtain advice from their attorney or tax professional.
While the above material is summarized from
sources deemed reliable, it is not guaranteed to apply to all transactions,
since other conditions may apply, and each real estate transaction has its own
unique characteristics.
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