Navigating Through Escrow

Finally, you and the seller strike a deal. You’ve agreed on the price and the seller will turn the house over to you in 30 days. What happens next?

Usually what occurs next is that the buyer’s good-faith deposit check (also called earnest money) is deposited. The deposit money may be held in a trust account, an escrow account or by an attorney, depending on where you’re buying.

The deposit check is cashed, so make sure you have sufficient money in your account to cover the check.

The deposit money will apply to the purchase price if the sale goes through. If contract contingencies can’t be satisfied, the deposit is usually returned to the buyers. But if the buyers back out of the deal for a reason not provided for in the contract, the sellers might be entitled to the deposit.

The period between acceptance and closing (30 days, in this case) is spent carrying out the terms of the purchase contract. The terms of every purchase contract differ. However, most contracts include a financing contingency, an inspection contingency and a provision for the buyer to confirm that title to the property is free of defects.

The inspection contingency, which allows the buyer to have the property professionally inspected, is usually completed soon after acceptance. Inspections can cause deals to fall apart. It’s in both the buyer’s and seller’s best interests to get this contingency out of the way quickly.

Thirty days isn’t a lot of time to secure mortgage approval. In a busy real estate market, it can take two weeks to get the property appraisal report.

After the lender has a complete financial package from the buyer, including the appraisal report, the package is sent to underwriting for review and final approval. So get to work lining up your financing as soon as your offer is accepted.

First-Time Tip
Make sure that you and the seller agree on the contract contingency and closing dates. If there is a discrepancy, clear it up quickly. You don’t want to discover on the 26th day that you and the seller disagree on the closing date and that it will be impossible for the seller to change his plans.

At some point (the earlier, the better), you should carefully review the title report. It’s wise to have a professional – an attorney or escrow officer – explain the report to you. You want to make sure that you will receive clear and marketable title to the property.

You will also need to decide how you want to take title to the property when the property transfers into your name. How you hold title has estate planning ramifications. Consult with an attorney specializing in title issues if you have any questions.

In addition, you’ll need to take care of the following details during the closing period: Comply with any state or local ordinances that are required when a property transfers ownership, line up homeowner’s insurance, interview and hire movers, have mail forwarded, settle with utility companies and schedule a final walk-through inspection.

The walk-through gives you the opportunity to make sure the house is as it should be, according to your contract. It’s also a time to pick the seller’s brain about the idiosyncrasies of the house and to get names and phone numbers of good handymen who have worked on the house.

The Closing
Your real estate transaction could be more complicated than this. The more contract contingencies there are, the more complicated the deal will probably be.

Dian Hymer is a syndicated columnist and the author of “Starting Out, The Complete Home Buyer’s Guide,” (Chronicle Books, Revised 1998.)