KEY CONCEPTS WHEN BUYING A HOME

EARNEST MONEY

When you decide to make an offer, you must be prepared to make an earnest money deposit. That deposit is a sign of your good faith that you are seriously interested in buying a home and you have the wherewithal to do so. The check should not be made payable to the seller or to your Realtor®, but rather, to the Escrow Company. Your earnest money deposit may be forfeited if the seller accepts the contract and you decide to back out of the deal outside the terms of the contract. Typically, an earnest money is 3% of the offer amount.

WHERE DOES MY EARNEST MONEY GO?

Once both the buyer and the seller have reached an agreement, we have three business days to make that deposit. The earnest money is deposited into the Escrow Company trust account. That deposit becomes part of the down payment. The earnest money is not deposited until there is a mutual acceptance of the offer.

CAN I LOSE MY EARNEST MONEY?

Very rarely does any purchaser lose the earnest money. Most offers are contingent on the buyer obtaining financing and conducting an inspection of the home. Prior to removing your contingencies regarding these things, your deposit is safe. However, if you decide that you do not want to buy the house, after removing all of your contingencies, your earnest money would be in jeopardy. In either situation, your earnest money is not released by the escrow company until both the buyer and the seller sign off, agreeing to whom the deposit is being released. If you have not yet released your contingencies, the seller would have no legitimate reason to withhold your deposit. If the buyer and seller cannot agree on what will be done with the earnest money, the funds will remain in the escrow account until the matter is resolved by either the court system or through mediation.

WHAT IS A CONTINGENCY?

A contingency is an open item that needs to be resolved or confirmed in order for you to continue with the escrow. As a buyer, you have a number of contingencies and each one will be released in writing during the course of your escrow. Examples of contingencies are:

    • Inspection of the home
    • Review of seller’s disclosures
    • Review of HOA documents
    • Satisfactory appraisal
    • Final loan approval

WHAT DOES ESCROW MEAN?

In California, this is a trick question. We use the word ‘escrow’ to mean multiple things. It’s the period of time between offer acceptance and when the home closes and becomes yours. It’s also the process through which all things occur to make it possible for you to own your home. Sometimes we use the phrase ‘escrow account’ which describes a neutral depository for funds. Lastly, it’s a 3rd party entity who manages the escrow process and oversees the transfer of title as well as the funds to complete the closing.

WHAT IS TITLE INSURANCE?

Title insurance companies insure the parties involved against defects in the title of real property. During the escrow process, the title company will research the property and verify that the title to the property is free of unexpected liens and may be cleanly transferred to the buyer. In each real estate transaction, there are two title insurance policies. The seller purchases a policy that indemnifies the buyer for the purchase price of the home. The buyer in turn purchases a policy for the lender that  indemnifies the lender for the loan amount.

The following links will provide valuable information on the home buying process:

    • PRE-APPROVAL VS. PRE-QUALIFICATION – Pre-approval involves a comprehensive review of your financial background by a lender, while pre-qualification is a preliminary assessment based on basic information provided by you.
    • CLOSING COSTS – Closing costs are the fees and expenses associated with finalizing a real estate transaction, typically including loan origination fees, appraisal fees, and title insurance.
    • PROPERTY TAXES – Property taxes are assessed by local governments based on the value of a property and are used to fund public services such as schools, roads, and emergency services.
    • BUYER DO’S AND DON’TS – Advice for buyers on getting pre-approved for a mortgage, researching neighborhoods thoroughly, and more, while covering things to avoid, such as making major purchases before closing and skipping the home inspection.
    • CONSIDER YOUR BUYING OPTIONS – When considering your buying options, Dore and Geoff Baker encourage you to explore different neighborhoods and property types to find the best fit for your needs, ensuring you make a well-informed decision.
    • MAKING AN OFFER – When it comes to making an offer on a home, Dore and Geoff Baker advise careful consideration and strategic planning to ensure you present a compelling offer that aligns with your budget and goals.
    • DISCLOSURE & DISCOVERY – Disclosure and Discovery rules ensure that buyers are fully informed about the property’s condition and any potential issues before completing the purchase.
    • HOME INSPECTION – Home inspection is a crucial step in making an offer on a home, providing buyers with a detailed assessment of the property’s condition to make an informed decision.
    • CLOSING ON YOUR NEW HOME – The final step in the home buying process, where ownership is transferred from the seller to the buyer, and all remaining paperwork and payments are completed.
    • BUYER’S ESCROW PLANNING TIMELINE – Use this chart to draft your buyer’s escrow planning timeline, ensuring you stay on track and meet key deadlines throughout the home buying process.