If you are an out-of-towner buying a home in Los Angeles you may not be familiar with the escrow process. In fact I sometimes forget that fact and half way through the process find out that my buyers, or sellers are totally lost and sometimes want to use the services of an attorney.
I would never discourage anyone from seeking the advice of an attorney, but unless there are complications, or you are purchasing a home directly from a developer, it is often a waste of money. It would be almost the same as hiring an attorney to read over the contract when you purchase a car. The California Residential Purchase Agreement cannot be changed except for certain terms to which you will have agreed with your Realtor® beforehand. In addition there will be a lot of standard California Association of Realtors® disclosure forms. Every Los Angeles home buyer and seller receives the same form, and they are just that, standard disclosures.
So what is escrow?
Escrow, generally selected by the seller, is a neutral party which interprets the terms of the contract and ensures that those terms are followed and fulfilled through to end of the escrow period. Escrow is opened when there is a fully ratified contract between the two parties, and instructions are sent to both Realtors®, the buyer and the seller, all of whom will read those instructions to ensure they are correct. Any changes made through the course of the contract, such as a change of closing date, or seller credit, etc. will be drafted up by escrow to be again approved by all parties.
Within three days, the buyer’s good faith deposit, 3% of the purchase price, must arrive at escrow, either through a wire, cashiers check or personal check. This deposit is in no danger if the buyer acts in good faith. What does that mean?
The contract will designate certain contingency periods which both the buyer and seller need to follow. Inspection, loan and appraisal for the buyer and the delivery of documents to the buyer by the seller (after which the buyer has 5 days to approve them). If the buyer completes their inspection within the time allotted they will remove the inspection contingency. If there is a problem which they would like the seller to address they will submit a Request for Repairs. This stops the clock and the ball is in the seller’s court. Once there is an agreement this contingency will be removed. If there is no agreement either side can cancel the contract the the deposit will be returned. Also, if there is a problem with the disclosures provided by the seller, the buyer may cancel the contract without penalty.
The final contingencies left to a non-cash buyer are the loan and appraisal. If the property does not appraise for the purchase amount the buyer can ask the seller to reduce the price or offer credit. The buyer can also decide to make up the difference. If there is no agreement, again the contract can be canceled without penalty. And if the buyer is in good faith unable to qualify for the loan in the end, again the contract can be canceled with no penalty.
Again, escrow is a neutral party which holds the funds and works with Title, the Lender, both agents and both the buyer and seller throughout the process. Your Realtor® is with you along the way managing the process, ensuring that timelines are met and answering any questions you may have during what must be an overwhelming time.
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