Escrow, Inspections & Appraisals

ESCROW: Now that you've found a buyer to purchase your home, and with the help of your real estate agent, you've reviewed any submitted offers to purchase and accepted the one that best meets your selling needs - now what? Now we open escrow and start the process of transferring the ownership of the property from you, the seller - to the buyer. But there are a few steps that need to be completed along the way.

​First of all - what is escrow? Escrow is when an impartial third party holds on to something of value during a transaction. When an offer is made on a home, the buyer will almost always be asked to deposit what is called earnest money (think of it as an indicator of how serious they are in seeing the transaction get completed and also a "mini-down payment"), that will be placed in “escrow.” That means it isn’t going directly to the seller but is being held by an impartial third party until you and the buyer negotiate a contract and close the deal. You can’t touch it and the buyer can’t touch it. It’s in escrow.

​That’s important because it protects both parties. Say the potential buyer put down earnest money that went directly to the seller and then they couldn’t reach a final purchase and sale agreement. You don’t want the seller holding any earnest money hostage as a negotiating ploy. Likewise, the seller won’t want to sign over the deed to the home until it has been paid for. And no one would want to hand over cash without the deed being signed. Escrow ensures everyone gets what they are due at essentially the same time.

What about closing costs? Closing costs are fees associated with any home purchase or sale and are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller. Closing costs vary widely based on where you live, the property in question, and the type of loan that chosen. Typically, home buyers will pay between about 2 to 5 percent of the purchase price of their home in closing fees. So, if your home cost $150,000, the buyer might pay between $3,000 and $7,500 in closing costs. On average, buyers pay roughly $3,700 in closing fees, according to a recent survey.

​Your escrow or title company will provide you a "seller net sheet", which will include what the closing costs on selling your home will be, along with any outstanding liens that need to be paid at the close of escrow. After all debts have been satisfied, you should be able to have a very close estimate of what your net proceeds will be.

Escrow and closing. Finally, you may hear someone refer to the “closing of escrow.” That’s when your purchase is completed. A closing or “escrow officer” will oversee the final paperwork and handle the exchange of funds and recording of deeds. This person, sometimes an attorney, will ensure that all the money is properly disbursed, that the documents are signed and recorded, and that all necessary conditions are met before closing the escrow.

​INSPECTIONS: Inspection day is often one of the most exciting moments for a home buyer, because it’s likely the first chance they have to go inside the home since they made you an offer. It’s also usually the last chance they’ll have until a final walkthrough.

​Home inspections can be reassuring, fun and exhausting all at the same time.

Home inspections don’t just provide the buyer with a list of problems or something catastrophic that makes the buyer want to back out of the deal altogether. It will provide a detailed report - that is something of a “new owner’s manual” for the home. It will include maintenance tips and schedules that should be followed.

As the seller, you can always complete a pre-sale home inspection before listing your home on the market. It can help prioritize any repairs that you might want to make and "get ahead" of any concerns that might arise from the buyer's home inspection. And as always - the seller is not required to make any repairs or concessions, after a home inspection has been completed. However, the sale of the home is relying on two counterparts acting cohesively towards a common goal - the purchase and sale of the home, and the buyer can cancel the contract if still within their contingency period.

​​​APPRAISALS: How Do Appraisals Affect Your Home Sale?

When selling your home, a buyer's lender (if utilizing a home loan to purchase) will require an appraisal, which will play a role in determining if the lender will approve their loan. All lenders order an appraisal during the mortgage process in order to assess the home’s market value and make sure the borrower is not attempting to borrow more money than the house is worth.

If the lender's appraisal comes in below the purchase price of the home, the buyer would need to pay the difference in cash, have the seller lower the purchase price, or get a second opinion. This is an important factor to consider when pricing your home for sale. Often, a homeowner will arise at a sales price that they feel is fair and reflects the time and money they have placed into the home. However, even if you find a buyer who is willing to pay that price and submits an offer, unless financing is not being utilized, an appraisal will be ordered and it will be hard to convince that buyer to pay more for the home than the current market value. That's why it's important to work with your agent to create a listing price that is based on current comps - matching your homes unique qualities and location, to arrive at the current market value.

​The home appraisal can also affect your home loan during a refinance. It can play a big role in the interest rate that you get, since the appraisal helps determine your LTV (loan-to-value) ratio. For example, if the LTV ratio is 75% or lower, you could get a lower rate, because the loan is seen as less risky to the lender. If the value of the home increases after you close on your home purchase, you may be able to refinance to a lower interest rate