Because a real estate purchase is one of the largest investments in your life, it is important to understand the real estate transaction process.
Getting pre-approved by a local lender or mortgage broker is one of the first things you should do for many reasons. In Bay Area, a pre-approval letter is a prerequisite for serious consideration of your offer. Knowing the available loan amount will aid in determining how much you intend to spend on your home and which neighborhoods to consider.
Generally, you should begin the pre-approval process immediately after meeting with your agent. If any issues come up, such as inaccuracies that make your credit score lower than expected, you will have time to resolve them. Our agents can help you through this process and recommend excellent lenders and mortgage brokers. Our recommendations are completely free of any conflict of interest; our agents do not benefit monetarily from providing recommendations.
Find a Home and Review Disclosures
Once you have located the desired property, carefully review the disclosures that the seller and listing agent provide.
Disclosures contain many important items, most notably the property and pest inspections, the seller’s disclosures, and the title report. Our agents will provide you with a summary of the important issues to help in y our review of the disclosures.
Property Inspection Report
The property inspection is the inspector’s opinion on the home’s plumbing, electrical systems, foundation, roof, and overall condition. This report will list all issues the inspector finds. The property inspector does not provide the cost estimates. Generally, items found in the property inspections are not addressed by the seller, but they are your responsibility to repair.
Pest Inspection Report
The pest report will look for any damage to wood, most likely caused by termites, as well as any water damage that may be found in the home. Unlike the property inspection report, the pest report will usually list the costs required to alleviate these issues.
The pest report describes damage as a Section I or Section II issues. Section I issues are current problems with the home, such as active termite infestation or dry wall damage in which water has rotted away at the wood underneath the flooring or walls. Section II issues are future problems with the home, ones that could lead to pest or water damage in the future.
The seller’s disclosures contain answers to questions, such as whether any remodeling has been done, and if so, whether the remodeling was done with permits. California is very protective of homebuyers and requires sellers to disclose all known material problems a property may have.
The title report is issued by a company, such as Old Republic Title Company, insures that the seller can convey clear title without any liens preventing a smooth conveyance. All liens that may be on the property, such as unpaid property taxes are listed in the title report. Problems with conveying title are rare.
Homeowners Association (HOA) Documents
If you are considering a townhouse or condominium, it is likely that the HOA documents will be included in the disclosures or be quickly forthcoming. Important issues to consider include the size of financial reserves, whether any litigation or special assessments are looming, and whether there are plans to heavily increase HOA dues. Unlike the interest on your mortgage, HOA dues are not tax deductible. Together, you and our agent will review the disclosures and discuss any concerns either of you may have with the information contained therein. Only after you feel comfortable with the disclosures should you consider making an offer.
Make an Offer
We will work with you to draft an offer. Our agent will speak with the listing agent ahead of time to ascertain the seller’s desires and to see if you can offer any items of value to the seller with little cost to you. This shows your desire to work with the seller and can optimize the situation for both you and the seller. Regarding what price to offer, our agent will provide you with a comparable market analysis, showing the selling price of recent comparable properties and what the market value is of the current property. Additionally, our agent will update you on the interest level of other parties and whether you may be in a multiple offer situation.
Acceptance, Rejection, or Counters
Once an offer is made, it can be accepted, rejected, or countered. A counteroffer accepts all the terms of the contract, except the terms that are mentioned. For instance, a counteroffer may increase the purchase price or shorten the escrow period. A counteroffer can be made to one party or multiple parties. If there is only one counteroffer and that counteroffer is accepted, then a binding contract has formed. On the other hand, if there are multiple counteroffers, which may all have the same or different terms, the counteroffer must be accepted by the buyer and reaccepted by the seller, ensuring that the home sells to only one party.
After the parties formed a contractual agreement, the escrow period begins. An escrow company is a neutral third party that acts as an intermediary between the buyer and seller. In Northern California, title companies handle both the title and escrow duties of the same transaction. The most important job of the escrow company is to properly take the buyer’s money in exchange for the seller’s property. An average escrow period is 30 days.
If your purchase contract has contingencies, such as a property contingency, then your agent will find inspectors to view the home during the contingency period. During this period, you can determine whether you want to proceed with the purchase. If you back out of a contract for a reason related to a contingency during the contingency period, then you are entitled to a full return of your “good faith deposit.” Our buyer agents can assist you and ask the seller to credit you for any new problems. Usually, an agreement can still be reached if the seller accepts your requests. If your findings uncover a major issue, such as bad foundation, then you will likely want to back out of the deal without seeking a credit, as this involves a lot of risk. If you have a loan, as most homebuyers do, then an appraiser will appraise your home.
Day of Closing
On the day of closing, the escrow company transfers your funds to the seller and records the deed in your name with the county. Once you are on record with the county, our agent will provide to you with the keys, garage opener, and access codes, if any. Other information, such as manuals for appliances, are usually left in the property. While you are the owner of record when escrow closes, it could take up to 3 months to receive official deed from the county.