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FAQ for Buyers

Q: Writing an offer, what terms are negotiable?
  • There are so many important terms to discuss with your Realtor when you decide to write an offer on a property.
  • The most important of course, is price. The market, the comparisons, other buyer competition, and seller motivation will all come into play when determining an offer price. The seller is most likely looking at their net price, so chose your price wisely, especially if you are asking for closing costs to be credited.
  • Closing Costs. There are several costs at closing for both the buyer and seller. It’s customary for each to pay their own costs, and for the seller to pay for Natural Hazard Disclosures, Termite Inspection, HOA documents, and the Owner’s Title Ins policy.
  • Home Warranty. You may ask for the seller to provide a home warranty, or you can chose to pay for one for the first year of home ownership.
  • The Close of Escrow. This is the amount of time it will take you to close the transaction. The type of loan you have can push this from 30-45 days. Talk to your Realtor about a realistic closing date for your specific needs. We prefer “on or before” dates so there’s a little wiggle room if you can close early.
  • The good faith deposit is also a negotiating tool. If there is heavy competition, the larger the good faith deposit the more determined and serious you will look to the seller. If there are several offers, there is what’s called an “increased deposit”, where you can deposit more funds into escrow once your contingencies are released.
  • Your loan type. You must disclose what type of loan you are obtaining and what the max loan rate is that you can afford. For example, if your Realtor writes in the offer that your loan rate shall not exceed 5%, and the rates jump to 7% before your rate is locked, you have protection to cancel the transaction because the rate exceeded your maximum affordability at 5%.
  • The contingency time frames. This is the time allotted to inspect different aspects of the property. If you can inspect the property in under 17 days, then cut it shorter to show your determination!
  • The selection of the escrow & title company. The seller usually has already pre-opened escrow when they list the property. Have your Realtor investigate this with the listing agent to determine which companies you should select. If you don’t have a company in mind, it is customary to write for the seller to select these service providers.
  • Again, all terms that are up for negotiation should be discussed with your Realtor to taylor the offer to your specific needs and the circumstances of the property.
Q: What happens when my offer is accepted? What is escrow and title?
  • Congratulations! Your offer has been accepted and now we “open escrow”.
  • Opening escrow means you deposit your good faith check into the escrow account with the company you and the seller agreed to use.
  • The escrow company is the neutral third party to the transaction. They will be drafting their own set of “escrow instructions” which will coincide with the purchase contract and outline the specific terms.
  • The escrow company will order title. The title company provides the “preliminary title report” to show you what loans are currently on title to be paid, what taxes are currently owed by the seller, and if there are any liens that need to be satisfied to “clear” the title. They will also be issuing your homeowner’s title insurance to protect your title over the entire span of time that you own home.
  • The first week you should work with your Realtor to schedule your home inspections. You will also want to have your loan officer order the appraisal.
  • The seller will be working to provide you with a stack of disclosures and disclosure reports for review. This will include local area disclosures, & natural hazard disclosures.
  • Your homework is to shop for hazard insurance to provide your lender with, and shop for a home warranty if you chose to select a company yourself.
  • By the second week you should have completed all of your inspections, and reviewed all reports & disclosures. The lender should have the appraisal report in, and be issuing you a “conditional” loan approval.
  • On or before the 17th day of the escrow, you should be ready to release your contingencies. If you are not ready, make sure your Realtor asks for a formal extension of time from the listing agent & seller.
  • Now that your contingencies have been removed, the seller will work to ready the property for closing. If the seller agreed to any repair work or termite section one work it will be completed during the last 2 weeks of escrow.
  • The third week of escrow your lender should be ordering official loan documents for you to sign with a notary. There will be an “Estimated Closing Statement” with your documents that will show you what funds are required for you to close. This is the amount you will need to have your bank wire to escrow at this time.
  • During the last week of escrow your loan should “fund”, meaning all the loan funds will be wired to the escrow company for closing.
  • At this time you will want to contact the utility companies and make sure they transfer all accounts to your name.
  • Once the loan has funded and escrow has all funds to close from you and your lender, they can release for recording! This means that the title company records you as the new owner of the property with the county of San Diego!
  • Depending on the recording time, confirmation can happen any time during the day, even after business hours on weekdays. Remember, the recorder’s office is closed on holidays so schedule your closing wisely. Thursday’s are a good day to close escrow because if there are any hiccups you can still close on Friday before the weekend.
  • Connect with your Realtor on when you can receive the keys to your new home!
Q: What is a good faith deposit, is it refundable?
  • Your good faith deposit is the amount you place down to hold the home in good faith that you will be closing according to the contract you have agreed to.
  • Sometimes it is also called an earnest money deposit.
  • Your deposit goes towards your funds it will take to close.
  • It is deposited into an escrow account, so your funds will need to be available as the check WILL clear your account.
  • Most of the time the seller will require a cashier’s check so that it clears immediately.
  • In California, and depending on your contract, you have a certain amount of time to explore the property you are purchasing. If there are issues with the property that you cannot live with, and the seller will not renegotiate terms, then you can back out of sale and essentially keep your deposit.
  • If you were buying into a condo community or planned unit development and you agreed to pay for the HOA document fee, then you may receive your deposit back less that fee if they were ordered up front.
  • There is however a liquidated damages clause in the contract. This means that if the seller suffered any losses due to the promise of you purchasing the property, or if you are canceling in bad faith, the seller can take you to arbitration court for a sum equal or less than 3% of the total price of the property. The seller has the right to not sign for the release of your deposit from escrow during the arbitration time period, and it can last up to a year or longer.
  • If you release your contingencies, and something happens after where you cannot close, the seller can keep your good faith deposit per the contract.
  • It is VERY important to work with a Realtor that can help you protect your good faith deposit.
Q: What is a Contingency?
  • Contingencies are what the purchase depends on to close successfully.
  • Contingencies are set in place to allow you to find out as much as possible about the property you are buying.
  • During the contingency period your deposit is safe for you to choose to cancel the transaction based on your findings of the property.
  • There can be different contingencies set in place. You will have time to:
    – have inspections on the property, including termite
    – explore the title and HOA documents & rules/restrictions if there is an HOA
    – have your lender schedule an appraisal and get your loan approved
    – look at local area disclosures and disclosures made by the seller about the property
    – review natural hazard disclosures
    – order hazard insurance and make sure the property is insurable

*What happens if there is something wrong with the property, like it needs repairs?

  • There is a form called a Repair Request where during the contingency period you can ask the seller to complete a repair, or to credit you for a repair.
  • Be prepared for the seller to say no, especially if there was competition getting your offer accepted, or heavy negotiations in the beginning. If the seller says no and you decide to move forward, you are accepting the property in its as is condition.
  • If the seller says yes to a repair, then it will be completed after you release all of your contingencies, and before the close of escrow. If the seller says yes to a credit, it will be balanced out through escrow and taken from your balance due to close.

*What happens if the appraisal comes in low?

  • If the appraisal comes in low with comparisons that justify the lower price, you can ask the seller to renegotiate to the lower price.
  • If the seller says no to the lower price, you can talk to your lender to see if you can do a rebuttle on the appraisal, or order a new appraisal for a second opinion. -Remember, the appraisal is an out of pocket cost for you, so talk with your Realtor about your options and make sure you are making a realistic approach to the scenario.
Q: What are my closing costs? Is everything rolled into the escrow?
  • As a buyer, many of your closing costs are rolled into the escrow, meaning they are paid for during the last week before the closing.
  • You may have heard the term recurring, and non-recurring closing costs.
  • Non recurring closing costs are one time fees which include your lender fees, escrow & title fees, recording fees, document fees, etc.
  • Recurring fees are prorated fees that are recurring even after the close of escrow. These are items like property taxes, hazard insurance, and mortgage interest.
  • The time of the month you close will determine how much your prorated interest fees will be, and the year you close will determine how much your prorated property taxes will be.
  • If you have chosen what’s called an “impound” or “escrow” account with your lender, where you pay your taxes and insurance monthly through your mortgage, then there will also be an up front pad for a certain amount of months which is determined by your lender.
  • All of these fees can add up, sometimes up to 3% of your purchase price. Be sure to get prequalified so that you can see a “Good Faith Estimate” to get an idea of what your closing costs will be.

*Can I roll the closing costs into my loan?

  • You can roll the closing costs in by asking the seller to pay for them at close.
  • It’s best to discuss this with your Realtor, as competition, appraised value, and seller motivation will all come into play when negotiating closing costs on an offer.

*Do I have to pay for anything up front?

  • Yes. Any inspections you chose to obtain on the property will require an up front fee. The inspector you hire should send you the amount and will ask for it before delivering you the report.
  • The appraisal is also an “out of pocket” cost for you. Typically your lender will ask you for your credit card information to place the order for the appraisal.
  • If you have concerns about value then it is best to have the appraisal done before coming out of pocket for an inspection. If you have concerns about the condition of the property, then it is best to have your inspections done before you come out of pocket for the appraisal.
  • Discuss this process with your Realtor to protect your pocket book as much as possible.

FAQ for Sellers

Q: A buyer submits an offer on my property, what terms are negotiable?
  • There are many important terms to discuss with your Realtor once a buyer submits an offer on your property.
  • The most important of course, is price. Your motivation, the current market, comparable sales, and offer activity will all factor into your price. The first step is to look at a “net sheet” that outlines all of the terms in the offer being presented so that you can see the bottom line. Sometimes it’s easiest to work backwards from what you want your net to be on the sale.
  • In today’s climate, many buyers will work to roll their closing costs into their loan which means they will ask you to credit all or a portion of their closing costs. A buyer’s costs can be up to 3% of the purchase price. It’s helpful when the buyer’s agent can provide information as to why they are asking for the credit so that you can make a decision. Depending on the buyer’s loan type there may be fees that are mandatory for you to pay.
  • It is also very important for you to review market comparisons with your Realtor so that the price does not exceed a realistic appraisal value. Even if the buyer agrees to pay a higher price to roll in their closing costs, their appraisal could come in under value which would give them the option to either ask you for a price reduction or walk away from the sale. With heavy buyer competition some agents will advise their clients to write their offer well above asking. It’s important for you and your Realtor to judge how realistic these prices are before wasting your time on a buyer that is hoping to renegotiate later.
  • The buyer’s good faith deposit should be between 1-3% of the purchase price. This amount will go towards the buyer’s funds to close, and regardless of the amount of the good faith deposit, your liquidated damages clause is still up to 3% of the contract price.
  • The length of the escrow and the day you would like to close. Get your calendar out! When is the best time for you to work out your move? The buyer will typically have 17 days to release their contingencies. Once their contingencies are lifted you can start to pack and schedule your move. The closing will depend on how much time you need. The buyer will need 30-45 days depending on their loan type. We suggest making an “on or before” close of escrow date, so that you can close early if all parties agree to it.
  • Contingency time frames are also negotiable. If you need to schedule your move and want early assurance the transaction will go through, then you can opt to shorten contingency time frames. Make sure you are realistic! Inspections can be done quickly depending on if the buyer is local or not. Loans and appraisals on the other hand can take time. Your Realtor should be able to contact the lender from the pre-approval letter submitted to see what their turn times are for a realistic approach.
  • The buyer’s pre-approval. It’s crucial that the buyer be qualified with a reputable lender before accepting an offer. If you have a lender that you are comfortable working with you may suggest the buyer cross qualify with that lender. The loan type & buyer’s down payment are factors you will need to know to make your decision.
  • The selection of the escrow & title companies. Many Realtors will work with you to pre-open an escrow when you list your property. If you haven’t worked with one before, ask your Realtor for a list of preferred companies so that you can make an educated decision. The escrow company will act as the neutral third party to the transaction, and the title company will insure the title for the new buyer. Some buyers will request their own company as well.
  • Customary seller fees. It is customary in California for a buyer to ask you to pay for termite inspection & section 1 repairs, natural hazard disclosures, HOA documents if you are located in a condo complex or PUD, and homeowner’s title ins polity.
  • Some buyers will ask for you to pay for a one year home warranty to insure items like appliances, A/C, or the roof. Warranty prices vary depending on the providers. If you chose to accept to pay for one, it’s important to set a price not to exceed.
  • Again, there are several factors to take into consideration when getting ready to accept or counter an offer on your property. Sit down with your Realtor and make sure you are comfortable with all aspects before signing.
Q: What happens if I decide to accept an offer, or a buyer accepts my counter offer?
  • The first step is “opening escrow”
  • The escrow company is the neutral third party to the transaction. They will be drafting their own set of “escrow instructions” which will coincide with the purchase contract and outline the specific terms. They will also ask for your payoff information for any loans to be paid off through the closing.
  • The escrow company will order title. The title company provides the “preliminary title report” to make sure there are no liens that need to be satisfied to “clear” the title.
  • During the first week, the buyer will be making their good faith deposit to escrow & scheduling their inspections, and their lender will be working to schedule the appraisal appointment.
  • At the same time, you should be working with your Realtor on “Seller Disclosures”, and your Realtor will be ordering the natural hazard disclosures and termite inspections. If there is an HOA, then the escrow company will work to order the HOA documents and CCR’s.
  • By the second week, the buyer should have completed all of their inspections, and reviewed all reports & disclosures. Their lender should have the appraisal report in, and should be working to “conditionally” approve their loan.
  • On or before the 17th day of the escrow, the buyer should be releasing all of their contingencies. Once the contingencies are lifted you can get ready to pack up your personal items! The majority of escrows do close once the buyer contingencies are lifted. Your job now is to ready the property for the closing. Did the buyers ask for professional cleaning? Is there termite work to be done? Make sure to schedule your move out accordingly so that there is time to complete any miscellaneous repairs.
  • During third week of escrow, the buyer should be signing their loan documents and wiring their funds to close.
  • During the last week of escrow, the buyer’s loan should “fund”, meaning all the loan funds will be wired to the escrow company for closing.
  • At this time you will want to contact the utility companies and make sure they are scheduled to turn off on the day after closing.
  • Once the loan has funded and escrow has all funds to close from the buyer and their lender, they can release for recording! This means that the title company records the buyer as the new owner of the property with the county of San Diego!
  • Depending on the recording time, confirmation can happen any time during the day, even after business hours on weekdays. Remember, the recorder’s office is closed on holidays so schedule your closing wisely. 
-Connect with your Realtor on key pick up and you’re all set!
Q: What is the buyer's good faith deposit; can I keep it if they pull out?
  • The good faith deposit is the amount the buyer places into escrow in good faith that they will be closing according to the terms of the contract you have agreed to.
  • Sometimes it is also called an earnest money deposit.
  • The buyer’s good faith deposit is not on top of the purchase price. It goes towards their funds to close.
  • It is deposited into the escrow account within 3 days of the offer acceptance, it does clear and is held by escrow until closing.
  • As the seller you can request that the good faith deposit be in the form of a cashiers check so that it is deposited immediately into escrow.
  • In California and depending on your contract, the buyer has a certain amount of time to explore your property. If there are issues they can either ask you for repairs or credits, or back out of the purchase and keep their good faith deposit.
  • There is however a liquidated damages clause in the contract. This means that if you suffer liquidated losses due to the promise of the buyer closing escrow, or if you feel they are cancelling in bad faith, you can have escrow withhold the deposit while take the buyer to arbitration court. You can arbitrate for a fee up to 3% of the purchase price, regardless of the good faith deposit. Communication is key during the transaction to avoid this type of scenario, as the arbitration process can be timely and on top of attorney fees you can be fined if you inappropriately withheld the deposit.
  • If the buyer releases contingencies and then something happens and cannot close, their deposit is at risk for you to keep per the contract.
  • It is VERY important to work with a Realtor that can help explain the good faith deposit in further detail, and help you to accept an offer that won’t be a waste of your time.
Q: What are contingencies, when do I know the escrow will close?
  • Contingencies are what the purchase depends on to close successfully.
  • Contingencies are set in place to allow the buyer to find out as much as possible about your property as possible before closing. Most sales do close after the buyer releases all contingencies. At that point, you should have somewhat of a guarantee that it will go through.
  • During the contingency period, the buyer’s deposit is refundable in the event they choose to cancel the transaction based on their findings of your property.
  • It’s important to DISCLOSE everything up front. If there is anything wrong or material defects with the property then expose them right away, instead of wasting your time during the contingency time frames.
  • There can be different contingencies set in place. The buyers will have time to:
    -have inspections on the property, including termite
    -explore the title and HOA documents & rules/restrictions if there is an HOA
    -have their lender schedule an appraisal and get their loan approved
    -look at local area disclosures and your disclosures made about the property
    -review natural hazard disclosures
    -order hazard insurance and make sure the property is insurable

*What happens if there is something wrong with the property, like it needs repairs?

  • There is a form called a Repair Request where during the contingency period the buyer can ask you to complete a repair, or to credit for a repair to be made.
  • You can say “No”. Keep an open line of communication with your Realtor to anticipate a response from the buyer. A buyer can walk away from the purchase and keep their deposit if you say no. Sometimes it is best to meet them halfway, assuming their request is resonable. Ask to see a contractor bid to accompany the inspection report to make an informed decision.
  • If you agree to a repair, then it must be completed after the buyer releases all of their contingencies, and before the close of escrow. If you agree to a credit, it will be balanced out through escrow and taken from your net proceeds at close.

*What happens if the appraisal comes in low?

  • If the appraisal comes in low with comparisons that justify the lower price, the buyer can ask you to renegotiate to the lower price.
  • If you agree with the lower price, then you can sign an addendum to the purchase contract and the price will change.
  • If you do not agree with the lower price, your Realtor can talk to the buyer’s lender about a rebuttle on the appraisal, or ordering a new appraisal for a second opinion.
  • Remember, you should have reviewed accurate sales comparables with your Realtor before you accepted the offer. Talk with your Realtor about your options and make sure you are making a realistic approach to the scenario.
Q: What are my closing costs? Can they come out of my net proceeds?
  • The majority of your closing costs can come out of the net proceeds of your sale.
  • You will have some fees associated with your loan payoffs along with interest and prorated property taxes.
  • As the seller, you will agree to pay compensation to your Realtor upon first listing your property. In Ca the customary fee is 6% of the purchase price which is split between your listing agent and the agent who represents the buyer, called the selling agent. This fee does come out of the net proceeds at the close of the sale.
  • There will be a flat fee owed to the escrow company, as well as a fee for the homeowner’s title insurance policy if you agree to pay that for the buyer. Along with any other fees you agreed to pay in the initial negotiation including closing cost credits, home warranty, termite inspection cost, repair credits, etc.

*Do I have to pay for anything up front?

  • Perhaps. If your property is located in a condo complex or PUD, and you agreed to pay the HOA document preparation fee, you may have to pay that fee out of pocket. This is because as the seller, you do not make any deposits into the escrow account, so there are no up front funds available for escrow to pay out of on your behalf.
  • You may request an “estimated closing statement” from your Realtor or Escrow Officer before even accepting an offer to get a better idea of what your fees will be up front.
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