Four things you need to know about Real Estate contracts

There are four requirements for a valid contract:

  1. Competent Parties
  2. Mutual Agreement
  3. Consideration
  4. Lawful Purpose
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How long is Escrow?

First off, what is escrow?  The escrow company is the neutral third party in a Real Estate Purchase.  They hold money and executed documents in trust until they are ready to transfer or record.

In California the escrow process usually takes about 30 days.  I’ve seen some as quick as 10 days and right now I’m involved in a sale that is taking 60 days.  Typically the buyer asks for the time period in the Residential Purchase agreement (RPA) that the lender and buyer’s agent have advised that this transaction will take.  The seller can counter a different time period.  After any negotiation both parties agree on a time period and the clock starts ticking.

On day one the contract is agreed on and signed by all parties. The listing agent, usually, will contact the escrow company, receive a number and “open escrow.”  Once escrow is open the buyer has until the end of day three to get the deposit into escrow. Deposit amount is usually one to three percent of the purchase price. The most convenient way is to use a wire transfer from the buyer’s bank directly in the the escrow trust account.  The buyer will be provided with instruction on how to do this.  Or if preferred the buyer or agent may deliver a check to escrow.

Then the buyer begins inspections, appraisal and any other due diligence as well as making a formal loan application. At day 17 (or another mutually agreed on day) the buyer is expected to release all contingencies but the loan.  At day 21 (or another mutually agreed on day) the buyer releases the loan contingency.  This is the buyer’s commitment to go forward and complete the purchase.  If the buyer does not complete the purchase after giving up contingencies, there may be penalties including the forfeiture of the earnest money or deposit.

The lender will order loan documents to be delivered to escrow and make an appointment with the buyer to come in and sign with a notary present.  If necessary the buyer may sign with a mobile notary at home or their work location.  The seller will have already signed the Grant Deed over to the buyer sometime during the escrow period and escrow will deliver for recording at the appropriate time to record the new title in the buyer’s name.

The buyer is entitled to a final walkthrough a  few days before closing to see if the property is in substantially the same condition as originally and to inspect repairs, if any.

One to two business days after signing and the deposit of any additional funds (downpayment, closing costs) from the buyer the loan will fund and then in LA county the title is recorded the following day.  Other counties may have different timelines.  Recording is usually day 30 of escrow.

The date the buyer takes possession of their new home is negotiated in the RPA.  Generally it’s the end of the day on the day of recording, but depending on the needs of both parties it may be a few days after the recording.  Your realtor may use terms something like COE plus 3.  That means Close of Escrow plus an additional three days.

After recording the escrow officer will balance the file and deliver the proceeds to the seller.

Congratulations, you’ve just completed escrow.

 

For more info: http://www.dre.ca.gov/files/pdf/Escrow_Info_Consumers.pdf