THE SELLING PROCESSSelling a home in our area means following a complex yet fairly predictable process. Although every home sale is different and slight variations can take place in any given sale, the main items involved in each sale are similar. The guidelines below are an excellent way to monitor the sale of a home, from begining to end!CHOOSING AN AGENT ESTABLISHING A TIME FRAME STAGING THE PROPERTY LISTING THE PROPERTY MARKETING THE PROPERTY NEGOTIATING THE PURCHASE CONTRACT COUNTER OFFERS OPENING ESCROW PROCEEDING THROUGH ESCROW DISCLOSURE FORMS BUYER'S INSPECTIONS PROPERTY APPRAISAL TERMITE CERTIFICATION
CLOSING THE ESCROW FOLLOW UP
CHOOSING AN AGENTChoosing an agent to represent you during the sale of your home is one of the most important decisions you will make. The good news is, if you have chosen the right agent, the balance of the decisions you will have to make throughout the sales process will be that much easier to make. The reason is simple, once you have an experienced agent who is knowledgeable about the selling process that agent will guide you through expertly, helping you avoid the pitfalls and resolving the mole hills before they become mountains. Choosing a good agent should not be difficult. Before you decide to place your property on the market you will start becoming "agent aware". You might now want to start saving those "annoying" real estate flyers that keep showing up in your mailbox! Some of the agent names you see on the various real estate FOR SALE signs in the neighborhood may start looking familiar.
Your ears will start to gravitate towards any converstion where you happen to hear the words "real estate". Obtaining agent's names from people you meet who have recently completed a successful real estate transaction is a great way to start narrowing down your choices. It is usually a good idea to interview two or three agents before making a decision on that one special agent. Basing your agent decision on experience and work ethics are excellent reasons to choose an agent. Choosing an agent who thinks your home is worth the most money (without the proper comparables) and who promises to hold open houses may not be good reasons. It is also important to choose an agent you feel is likeable and who fits in with your general personality. The chances are good that you will be dealing with this agent a lot over the next several months; you might as well try to make it as enjoyable as possible.
ESTABLISHING A TIME FRAME
Setting an approximate time line for the sale of your home can shave pounds of anxiety off of the home selling process. A well thought out time line will let you know what to expect and when to expect it.
Since the home selling process is fairly predictable, setting up a realistic time line is pretty easy. You start with the date you want to have the cash proceeds from the sale of your home in your hand. Do you want the money somewhere around October 1st? Great! Since we know that most homes end up in escrow for 30 to 60 days, we take the conservative end and make it a goal to be in escrow by August 1st. Now, to end up in escrow by August 1st when do we place the home on the market? Of course there are a few variables here (not the least of which could be the general price range of the subject property) but again, the process is fairly predictable. Finding out through your Realtor how long the most recent comparable sales were on the market before they sold is an excellent way to determine the average marketing time in your neighborhood. In the Palos Verdes area during the last 12 months most of the homes that did sell sold within 60 to 90 days. So voila! We back calendar 60-90 days from our August 1st escrow opening date and it looks like a reasonable idea to be on the market sometime between May 1st and June 1st.
To summarize, in this case it was a good plan to be on the market by June 1st to have the home in escrow by August 1st, with the goal of having cash at the closing on October 1st. All in all, the process can take about 4 months. Obviously, the average seller doesn't always have their cash within 4 months of placing their home on the market. Another good reason not to hire an average agent!
STAGING THE PROPERTYStaging the property before showing it to the world is an important element in obtaining a good price. Buyers have a preconceived idea of what their "dream home" looks like and the closer you can bring your property to that "dream home look" the better your chances are of obtaining top dollar. I've said it before and I'll say it again..."The way you normally live in a property and the way you show a property for sale are two different things". The difference is staging. Do you normally leave the house in the morning with the bed unmade and cereal dishes in the sink?
Do you usually have some of the drapes closed and the lights turned off? Is last week's L.A. Times still sitting on the coffee table? The effort it would take to tidy up these items is not great, but the difference in the way the property appeals to the potential buyers will be significant. Staging involves everything from that first look at the property from across the street, to the unlikely event that a buyer might open your bathroom cabinet, and everything in between. If you have ever wanted a chance to spend money at Home Depot, here is your chance! Let's see... a couple of colorful flower bowls for the front porch, new light bulbs for the chandelier, fancy paper towels for the kitchen... the list goes on. It all makes a difference in how the property looks to a buyer who will be seeing the home for the first time. Yes, even kid's rooms should be staged in an effort to give the entire house that "model" look. Of course, kids are easier to bribe than they are to give orders to, so a full day at Disneyland (for the sub-teens) or tickets to the next N' Sync concert (teenagers and up) might go a long way towards garnering the kids' cooperation!
To summarize, efforts placed on staging a property for sale are usually well worth the effort and the results will be seen in very important ways. Agents start talking favorably about the property, buyers begin to take the property more seriously as a home contender, and the next thing you know, you are in escrow! Now don't forget to reward those kids who helped you get there!
LISTING THE PROPERTYListing the property involves several important isues. Each issue should be well discussed in advance so the listing moves forward under a well planned format. The following listing contract variables have been provided in the order that they appear in the California Association of Realtor's Listing Contract. DETERMINING THE CONTRACT TIME
The term of listing agreement on a property is important. If it is too short it may discourage the listing agent from investing the time, money, and energy necessary to properly market the property.
If it is too long, some sellers feel that the long contract date reduces the urgency of finding a buyer on the part of the agent, and will lock them into an agent that may not perform. Part of the decision on how long to list a property rests with the average market time in the neighborhood. If most homes are sold within 60 days of coming on the market, then a 90 day listing should be enough time for the listing agreement. DECIDING UPON AN ASKING PRICE
Reviewing all of the data on recent active listings, pending sales, and closed escrows usually goes a long way towards choosing an asking price. Choosing a price that is too high with the idea that "we can always come down" is usually a mistake. A new listing receives the highest percentage of activity during the first two to three weeks on the market. A home that is reduced after that time period is unlikely to regain any of that lost exposure. Pricing a property within 2 to 3 percent of the estimated value is usually a better plan for getting top dollar and is the most effective way to attract serious buyers.
OFFERING SPECIAL TERMS
One of the goals of a successful marketing plan is to open up the listing on a property to the greatest number of buyers possible. Offering special terms is an excellent way to attract additional buyers. Sellers who agree to carry the financing on the sale of a property will make the property available to quite a few more buyers. Even sellers who offer to carry back a small part of their equity in the form of a second trust deed will generate additional interest. Sellers who are open to a lease-option also allow a greater number of additional buyers to step up to the plate. SETTING THE COMMISSION
Real Estate sales commissions are negotiable, set by supply and demand in the market place. In general, commissions often run between 5 to 6 percent of the sales price of the property. On most residential sales the commission is split. Ususally 50% of the commission is paid to the real estate company that represents the seller, and 50% of the total commission is paid to the real estate company representing the buyer.
The commission is usually split again within the real estate Brokerage, with a percentage paid to the actual agent involved, while the company keeps the balance. Even though real estate commissions are negotiable, it is usually not a good idea to offer a commission that does not provide enough incentive for the agents to work hard to find a buyer for the property.
PROVIDING ACCESS TO THE PROPERTY
The easier the property is to show to potential buyers, the more it will be shown. Since the more frequently a home is shown, the greater the likelihood it will receive a good price, access is very important. All things being equal, homes for sale that are shown by appointment only, or that do not offer a lockbox, are generally shown the least. Homes that are vacant and do feature a lockbox are generally shown the most. Homes that are occupied, allowing lockbox access after an agent calls first, is the most common type of showing arrangement in our area and also allows for frequent showings. DECIDING ON A SIGN
Most properties for sale utilize a FOR SALE sign. There are several advantages to having a sign. A sign can add valuable exposure for a property for sale, informing some buyers who may not have otherwise known the property was available. A sign also helps agents identify a property while out showing buyers.
One of the disadvantages of a sign is that it is possible that a buyer or agent who happens to be in the area may decide to see or show the property without making the proper showing arrangements in advance. Although this can be inconvenient, motivated sellers will often overlook this slight inconvenience in an effort to expose the property to every possible potential buyer and agent.
MARKETING THE PROPERTYLetting the world know that a property is for sale is the main thrust behind marketing a property. Most real estate agents incorporate several different marketing ideas, in an effort to broaden the scope of exposure to as many potential buyers as possible. Some of the main marketing ideas are included here for your review. MULTIPLE LISTINGS SERVICE
The M.L.S. is by far the most powerful advertising tool available for the marketing of real estate. Most real estate agents are members of the local Multiple Listings Service and will list a property on the M.L.S. as a main source of exposure to buyers via other agents.
WORLD WIDE WEB
With the increasing use of computers and the Internet by the general population, exposing properties for sale on the Web is becoming increasingly common. So common, in fact, that properties listed on the local M.L.S. systems are automatically downloaded on the World Wide Web. This information is picked up directly by the consumer, who if interested, will contact either the listing agent or their buyer's agent for further information. FOR SALE SIGN
Placing a FOR SALE sign on the property is one more way to expose the property to the greatest number of potential buyers. Buyers and agents often drive around specific neighborhoods looking for available properties and a FOR SALE sign can open up the exposure of a property to many additional people. BROCHURE BOX
Some agents attach a brochure box to the FOR SALE sign. These brochures are quite often the same brochures that are available inside the property.
While brochure boxes can be a good way to keep the neighbors informed, and to promote the listing agent, the effectiveness of brochure boxes for actually creating sales is probably minimal. PROPERTY BROCHURES
Once an agent or a prospective buyer enters a property for sale, it is common for the listing agent to provide a property brochure for the buyer to pick up and take home. The quality of these brochures ranges from simple one page black and white copies, to more elaborate multi-paged brochures with color photographs. These brochures usually offer at least the minimum information on the home, such as the address, price, and basic amenities. OFFICE CARAVANS
When a property is new on the market, the listing agent will often include the property on the list of new listings to be previewed by the office, usually after the weekly office meeting. This gives the agents in the listing office a chance to view the the property before most of the agents in the other offices, giving the agents in the listing office a slight edge in the possibility of procuring a buyer.
This also helps the agent who, at a later date, may be fielding questions about the property from potential buyers who can on ads or from FOR SALE sign exposure. BROKER'S OPEN HOUSES
Similar to the office caravan, the Brokers Open House allows agents from all of the local real estate offices to drop by and look at a new listing, while the listing agent usually has the property opened and properly staged. The Broker's Open House lasts between one and one half to two and one half hours, with a common time frame being two hours. Food or snacks are often served as a courtesy to the agents previewing, as these agents are usually looking at Broker's Open Houses during the lunch hour. DISTRIBUTING FLYERS
Listing agents will sometimes try to raise the level of the exposure on a new listing by having professionally designed flyers delivered to real estate agents in the offices near the property for sale. These flyers can sometimes catch the attention of agents working with buyers who might not have noticed the property on the Multiple Listings Service.
These flyers are also used to promote a Broker's Open House planned for the property. ADVERTISING
There are various forms of advertising available to the listing agent looking to promote a property for sale. Classified ads and display ads in local newspapers, photo ads in local real estate publications, specialty ads in trade publications, plus much more. While the cost of these ads can be considerable, the real value for the exposure of the specific property being advertised is difficult to determine. In the overall scope of the marketing of a property, the odds of a buyer buying the specific home that was advertised is small. However, it is possible that a buyer could call on an ad for a specific property and the agent handling the call may steer that buyer to a more appropriate property. Therefore, although the property advertised may not benefit directly from advertising, it is possible that the other properties listed with that firm will benefit from the advertising program in that office.
PUBLIC OPEN HOUSES
Holding an open house for the general public on a Saturday or Sunday afternoon as a way to generate interest in a property for sale is a marketing technique that has been in use for decades. The debate continues as to the actual value of this type of exposure. Just when you are sure that nobody ever sells a home from an open house, you'll run into a buyer at a cocktail party who says he or she found the home of their dreams from an open house. Yes, a small percentage of homes may sell from the exposure of a public open house. How many of these homes would have sold a week later to the same buyer using an agent is hard to say. Still, there is a perception among some sellers that there can be value to holding an open house. Several elements enhance the effectiveness of an open house. The most important being a competitive price and the second being a well staged environment. Holding an open house on an overpriced listing or a listing that does not show well can be a great way for the agent to pick up new clients, but the property being held open is unlikely to benefit from the exposure.
MISCELLANEOUS MARKETING
There are many additional methods available to the listing agent to expose a property for sale. Word of mouth to other agents and buyers, direct mail programs, drawings and prize giveaways, and much more. The marketing ideas for any given property are only limited by the imagination and budget of the listing agent. SUMMARY
While an aggressive marketing plan can help expose a property to additional prospective buyers, marketing should not be used as a tool to compensate for a property that is not priced competitively. When utilized in conjunction with a good price, marketing can significantly help the exposure of the property and ultimately the sales price.
NEGOTIATING THE PURCHASE CONTRACT
Finally! The day has come when a buyer has put pen to paper and written up an offer to purchase your home. More than likely, the format used to express the buyers interest is the C.A.R. five page Purchase Contract.
This contract covers a lot of ground and each page should be reviewed with care. Starting with the first page and working through the contract, these are some of the most important issues.NAME OF THE PURCHASER
This may seem like an easy item, but there are several issues for a buyer to decide upon before the ownership can be specified. For purposes of procuring the necessary loan, it is important for all borrowers on the loan application to be purchasers on the property. Ways of holding title, such as purchasing the property in a revocable living trust, can be decided upon at a later date. Many lenders will not allow a buyer to purchase a property as Trustee, but prefer that the buyers place the property in the trust after the close of escrow. Purchase contracts that are written with the buyer "and/or assignee" give the seller very little information about the ultimate buyer. This is a "red flag" that should receive additional attention as the contract moves forward.
DEPOSIT
To be taken seriously, an offer to purchase usually includes a good faith deposit. The amount of the deposit is negotiable, but generally runs from one to five percent of the purchase price. The amount of the deposit is usually agreed upon to be the amount the buyer offers as Liquidated Damages. This is money the buyer agrees to relinquish in the event they decide not to complete the sale during the course of the escrow, after the contingency dates have passed. In general, the longer the escrow time on a sale, the higher the deposit should be. Theoretically, a seller is damaged to a much greater degree if a buyer backs out right before closing a 3 month escrow, than if a buyer backs out just before a 30 day escrow. To summarize, time is money.PURCHASE PRICE
The purchase price offered by the buyer is determined by several factors. Although the sales of other recent comparable homes should be a big part of the consideration, other factors include the buyer's emotional attachment to the property, the buyer's motivation to purchase, and to some extent the general savvy of the buyer when it comes to real estate transactions.
Of course it is not uncommon for the buyer to ask for some price feedback from the agent they are working with, so part of the decision on the initial offering price may include some feedback from the buyer's agent. INCREASED DEPOSIT
Some buyers will submit a minimal deposit upon the presentation of the offer, only to increase the deposit to an amount acceptable to the seller after the buyer's contingencies have been met. This is usually within 10 days of the signing of the contract. The seller may choose to go along with a small initial deposit, as long as the buyer agrees to increase the deposit by a date specified on the purchase contract. DOWN PAYMENT
The buyer's down payment is an important element of the sale. A large down payment can show a degree of strength for the borrower, the ability to qualify, and can also make the appraisal a less critical element in the financing process. Keep in mind, however, that smaller down payments are common today, even with highly qualified buyers, with the idea of maximizing the current tax advantages of interest deductions for home loans. FINANCING
Cash sales are not that common, so most buyers procure new primary and/or secondary financing.
The maximum interest rate and loan points that a buyer is willing to pay is stipulated in this section of the purchase contract. This number usually allows for a slight buffer for minor fluctuations in interest rates between the time the offer is accepted and when the buyer receives formal loan approval. LOAN CONTINGENCY
Most purchase contracts stipulate that the offer is contingent upon the buyer's ability to procure new financing. However, if no deadline is tied to this contingency, a buyer can proceed towards the close of escrow with no risk of losing the deposit. If the buyer's loan is not approved as the parties approach the closing date, the seller has lost valuable marketing time. In an effort to keep the buyer on track regarding the new financing, some sellers set a date that ends the buyer's loan contingency. As an example, rather than allow a buyer to have the sale contingent upon financing all the way through a 45 day escrow, a seller may allow this contingency for the first 30 days only. If the buyer fails to obtain financing after the 30 day loan contingency period, the buyer's deposit is now at risk.
LOAN PRE-QUALIFICATION
One of the reasons buyers have been increasingly cooperative about becoming pre-qualified before presenting an offer is because of increasingly demanding sellers. The other reason is that the most recent versions of the purchase contract incorporate pre-qualification as a contingency of the contract. The standard contract allows for the buyer to provide a pre-qualification letter from the buyer's lender within 5 days of the acceptance of the contract. The amount of time is negotiable, but most sellers want to nail this financing issue down as soon as possible so they know the likelihood of the buyer obtaining financing is high. APPRAISAL CONTINGENCY
This option in a purchase contract is a relatively new one for buyers and many buyers are not afraid to mark this box. In essence, in addition to having the purchase contract contingent upon the buyer qualifying for the loan, this section provides that the property also qualify, by being appraised at the sales price amount.
This is usually not a problem, unless the property was sold above the current market value. ESCROW CLOSING DATE
The closing date can be specified either as a specific number of days, such as 30 days or 45 days, or as a specific date, such as December 30th, 1999. In both cases it is strongly suggested that the seller review the date on a calendar. It is easy to commit to closing an escrow on a Wednesday, but it might be a different story trying to arrange the move around work and school schedules, once the date actually arrives. Also, watch out for closings that may fall on a Monday. Although this may be fine with your schedule, buyers often do not realize the extra costs on their part for a Monday closing because of the interest costs they are paying over the weekend. They will often approach a seller in mid-escrow for an alteration in the closing date. It is better to make sure everyone is on the same page from the very beginning. POSSESSION DATE
Although the possession date can be the same as the closing date, it is important to realize that the date and time of buyer's possession is not necessarily the same as the closing date. Although the buyers usually want possession as soon as the recording of the grant deed can be confirmed on the morning of the closing (usually around noon on the day of closing), some sellers request a possession time either later on in the day, or in some cases, a day or two after the closing date. Whatever the reasons for the possession date requested by the buyer, the seller should look at a calendar and think the proposed date through, before agreeing to the offer. Once the buyer has a possession date in their mind, it can be difficult to change it at a later date. ALLOCATION OF COSTS
The allocation of the costs to be incurred through escrow is specifically defined on the first page of the purchase contract. Costs for transfer fees, title insurance, sewer issues, zone disclosure reports, smoke detector and water heater compliance, home warranty policies, and pest control costs are all specifically defined in this section.
Most of these costs are negotiable, but regional preferences usually prevail. As an example, if you ask a seller to pay for Section 2 termite work in the contract and this item is traditionally a buyer cost item, don't be surprised if the seller puts this item back in your court during the counter-offer process. PEST CONTROL TERMS
More commonly addressed as the "termite report", pest contol issues and responsibilites are clearly defined in the purchase contract. In our area it is customary for the seller to provide the buyer with a pest control "Certification". Although this certification will generally reflect work completed under the "Section 1" guidelines of the termite inspection (usually the seller's responsibilty) it may not include recommendations on the report categorized as "Section 2" work, which is usually the buyer's responsibility. Asking the termite company to specify "Section 1" and "Section 2" work in the inspection report can help clarify these responsibilities. In addition to the buyer wanting a copy of the pest control certification, many lenders will also demand a copy prior to funding the buyer's new loan.
DISCLOSURE STATEMENTS
Current laws require that the seller provide the buyer with the following:
* REAL PROPERTY DISCLOSURE STATEMENT
* NATURAL HAZARDS DISCLOSURE STATEMENT
* LEAD BASED PAINT HAZARDS DISCLOSURE
* SMOKE DETECTOR STATEMENT OF COMPLIANCE
* WATER HEATER STATEMENT OF COMPLIANCE
* EARTHQUAKE SAFETY BOOKLET
* RESIDENTIAL EARTHQUAKE HAZARDS REPORT
* ENVIRONMENTAL HAZARDS BOOKLET
* DATA BASE DISCLOSURE FORM.
These forms are signed by the seller and then acknowledged by the buyer, with signed copies then returned to the seller. If the seller becomes aware of subsequent disclosure issues after the buyer has been given these disclosure forms but prior to the closing of escrow, the seller is required to provide the buyer with the subsequent disclosures in writing. PRELIMINARY TITLE REPORT
The buyer is usually provided with a copy of the Preliminary Title Report during the time period specified on the third page of the purchase contract, usually 10 days.
The preliminary title report is only an offering by the title insurance company and may not contain all of the issues of the title. The buyer's approval of the prelim is usually a contingency of the sale and the buyer must provide written notice to the seller of any items reasonably disapproved of in this report. CONDITION OF PROPERTY
The purchase contract in common use today specifies that the seller is selling the property "as-is", without warranty and in it's present physical condition. The buyer will generally ask for exemptions to this "as-is" status and most buyers ask that the seller warant some of the major systems of the property, including known leaks in the roof, non-working appliances, known leaks in the plumbing systems, defects in the fireplaces and chimneys, septic system defects, broken glass and torn screens, and having all debris removed from the property. The purchase contract allows boxes to be checked for these items to be warranted by the seller. FIXTURES
All existing fixtures are included in the sales price, unless excluded in the purchase contract.
Fixtures are items that are permanently attached to a property and generally include, but are not necessarily limited to existing electrical, mechanical, lighting, plumbing and heating fixtures, fireplace inserts and equipment, solar systems, built-in appliances, window and door screens, awnings, shutters, window coverings, attached floor coverings, television antennas, satellite dishes, private integrated telephone systems, air conditioners, water softeners and purifiers, security systems and alarms, pool and spa equipment, garage door openers and remotes, mailboxes, and in ground landscaping. Did I mention the kitchen sink? PERSONAL PROPERTY
Personal property is not included in the sales price of the property unless it is specifically stated in the purchase contract. If personal property is included in the sale, it is usually stipulated to be "free of liens and as-is", unless specified otherwise. If significant personal property is to be included in the sales price, it is usually a good idea to keep it separate from the real estate sales transaction and to stipulate the terms of the personal property transfer in a separate agreement outside of escrow.
BUYER'S INVESTIGATION OF PROPERTY CONDITION
Most buyers utilize the services of a professional home inspector to review the property condition and the buyer's purchase contract is contingent upon the buyer's acceptance of the results of those inspections within the time frame specified in the purchase contract (usually 10 days after the acceptance of the offer for physical inspections, 17 days for geological inspections). If the seller refuses or is unwilling to make the repairs of any items reasonably disapproved of by the buyer within the time frame specified in the purchase contract (usually within 5 days of receipt of buyer's written notice), the buyer has 5 days after the receipt of the seller's response to cancel the agreement in writing. In the case of most purchase contracts, silence regarding an issue is deemed to be acceptance. When in doubt, put it in writting. FINAL WALK-THROUGH
Buyers usually reserve the right to make a final inspection of the property within 5 days prior to the closing date.
This final walk-through is not a contingency of the sale, but is for the buyers to confirm that agreed upon repairs have been completed and that the seller has maintained the property throughout the escrow period, as stipulated in the purchase contract. SALE OF BUYER'S PROPERTY
If the buyer's offer is contingent upon either the sale of the buyer's property or the closing of the buyer's property currently in escrow, the buyer is not fully committed to the sale until that contingency has been removed. The seller has the right to request specific information related to the sale of the buyer's property. If the buyer's property does not close escrow by the time period specified for the close of escrow in this contract, then either seller or buyer may cancel the purchase agreement in writing. Upon the mutual agreeement of the parties, the seller and buyer may also agree to extend the escrow date to accommodate a later closing. If the buyer's property is not yet sold, the buyer and seller may agree to allow the buyer the right to be "first in line" to buy the property by allowing the buyer 72 hours to remove their contingency if the seller accepts another written offer.
TIME PERIODS
Both the seller and the buyer have strict time periods which must be adhered to, to keep the contract valid. For the seller these responsibilities include providing disclosure forms, termite and zone disclosure reports, and in responding to the buyers investigations. The buyer must adhere to these time periods for performing and responding to their inspections and investigations, as well as for reviewing and signing reports such as environmental hazard reports. LIQUIDATED DAMAGES
In the event of a default on the part of the buyer, the buyer and seller can agree in advance in the original purchase contract, as to the amount of money that the seller will retain as liquidated damages. This amount is usually the amount the buyer has placed as a deposit, but can be no more than 3% of the purchase price for a single family home or condo. This provision in the purchase contract must be initialed by both buyer and seller. Although liquidated damages help to define an agreed upon sum of money in the event of a buyer default, these damages are not released automatically.
The party holding the deposit, usually the escrow company, can only release funds to the seller upon receipt of signed instructions by both parties, the results of binding arbitration, or upon court order. MEDIATION AND ARBITRATION
Mediation and arbitration are forums for the resolution of disputes in the agreement between buyer and seller. Buyers and sellers often choose to initial this process in an effort to avoid the time and expense of formal litigation. The process begins with Mediation, which is a more casual effort to resolve the issue and is generally used whether or not arbitration has been agreed upon. Buyers and sellers should understand that by choosing arbitration, the right to pursue the dispute in court or by a jury trial may be eliminated. AGENCY CONFIRMATION
For many years the issue of "agency" was not clarified in the purchase contract. This allowed for some misunderstandings, as the agent representing the buyer is usually paid a commission by the seller.
To assist in clarifying who is representing whom, the newer purchase contract defines which company is the listing agent and whom they represent (generally, the seller exclusively) and which company is the selling agent and whom they represent (generally, the buyer exclusively). If the agent involved in the sale represents both the seller and the buyer, this information is also clarified. REVOCATION DATE
The purchase contract presented from the buyer to the seller is valid for a specific length of time. The expiration of the contract is specified as a date and an hour on the final item on the last page of the contract. In order for the contract to remain in effect, not only must the seller respond within that time frame, but a signed copy of the offer must be personally received by the buyer or the person specified by the buyer in the contract (usually the buyer's agent). The buyer has the right to rescind the offer at any time prior to receiving a signed copy of the seller's acceptance.
COUNTER OFFERS
It is not uncommon for certain items in the original purchase contract to be unacceptable to the seller. Although price is usually one of the items of contention, other terms in the original purchase contract may also need to be negotiated. When this happens, the seller usually provides the buyer with a written counter offer within the strict time frame presented in the original offer. The counter offer only addresses issues that are unacceptable in the original offer and issues in the original offer that are not addressed in the subsequent counter offer are deemed to be an acceptable part of the purchase contract. Just like the buyer's right to rescind an offer prior to it being accepted by the seller, the seller has the right to rescind a counter offer prior to it being accepted by the buyer. The process of offer - counter offer - counter-counter offer can be played out to extremes. Usually the important terms of the purchase contract are ironed out during the first or second counter offers. However, the issue of price can be an important issue for both parties and may not be resolved as easily. A key element in the counter offer process is the revocation date in each counter offer.
Although the spirit of any given counter offer may extend beyond it's expiration date, technically a counter offer dies once the deadline has arrived, unless a new counter offer has been created by the responding party within the time frame stipulated on the last counter offer.
OPENING ESCROWOnce the buyer and seller have come to a complete agreement on the terms and conditions of the sale via the original offer and subsequent counter offer(s), escrow can be opened. Escrow is a neutral third party, hired by the seller and buyer, to coordinate the many issues necessary to complete the sale. The buyer and seller each pay a fee to the escrow company for this service. The purchase contract usually stipulates a time frame for the opening of escrow and it is usually within a day or so of the completion of the purchase contract. Some of the main issues to address when opening an escrow are included below. OPENING ESCROW
The escrow process is usually started when one of the agents in the transaction contacts the escrow company that was agreed upon in the purchase contract.
The agent will usually fax a copy of the purchase contract and any counter offers, which the escrow officer will use as a format for the escrow instructions. The terms and conditions of the escrow instructions generally reflect the agreed upon terms and conditions in the original purchase contract, with some additional verbage added to clarify certain conditions of the escrow. SIGNING AND RETURNING ESCROW INSTRUCTIONS
Both the buyer and seller must sign and return the escrow instructions to the escrow company within the time frame specified in the purchase contract. This time frame can be several days, to allow all parties the opportunity to meet with their respective agents and then to review and sign the escrow instructions. SUBMITTING THE DEPOSIT TO ESCROW
The buyer must submit the deposit to escrow within the time frame specified in the purchase contract. Although it is possible that the buyer or buyer's agent can submit the deposit when the escrow is initially opened, it is not uncommon for the deposit to be submitted concurrently with the executed escrow instructions.
MISCELLANEOUS ESCROW PAPERS
In addition to the actual escrow instructions, the escrow company also includes a variety of forms and papers that must be returned to escrow. These forms include, but are not necessarily limited to, the Statement Of Information, Lender's Demand Request, 1099 Form, and often city and government disclosure forms.
PROCEEDING THROUGH ESCROWFrom the time escrow is opened until it closes, many issues must be dealt with. Most of these issue are included here. DISCLOSURE FORMS - As selling a home becomes a more sophisticated process, new disclosure forms continue to enter the picture. Here is a list of some of the forms a seller can expect to provide the buyer with during the sale of a home in Los Angeles County: * REAL ESTATE TRANSFER DISCLOSURE STATEMENT
* LEAD BASED PAINT HAZARDS DISCLOSURE
* SMOKE DETECTOR STATEMENT OF COMPLIANCE
* WATER HEATER STATEMENT OF COMPLIANCE
* EARTHQUAKE SAFETY BOOKLET
* RESIDENTIAL EARTHQUAKE HAZARDS REPORT
* ENVIRONMENTAL HAZARDS BOOKLET
* NATURAL HAZARD DISCLOSURE STATEMENT
* DATA BASE DISCLOSURE FORM BUYER'S INSPECTIONS Since the buyer's offer is contingent upon the buyer's acceptance of the condition of the property as determined by the buyer's inspections, it is important that these inspections be performed in a timely manner. If the buyer is not satisfied with the condition of the property because of repair items or information brought forward from the inspections, the buyer usually makes a request to the seller in writing, within the time frame specified in the purchase contract, asking the seller to correct any unacceptable items. If the seller agrees, the sale moves forward. If the seller does not agree to correct any item requested by the buyer, the buyer has the option to cancel the sale and receive the deposit back. The buyer also has the option to move forward with the sale, accepting the issues that the seller will not repair. PRELIMINARY TITLE REPORT
The buyer's offer on the property is contingent upon the buyer's approval of the preliminary title report within the time frame specified in the purchase contact.
Although this contingency is rarely used to back out of a sale, if the buyer discovers a previously unknown easement on the property, or some other information regarding the title that is a concern to the buyer, cancelling the sale is a legitimate alternative. PEST CONTROL
The buyer is usually entitled to a "pest control certification" at the close of escrow. Sellers initiate this process by having the property inspected by a licensed termite company. The inspection usually involves findings, issues that need to be corrected and recommendations, methods of treatment or repair that will allow the pest control company to provide a "Certification". If the recommendations include a fumigation of the structure, the seller must plan to vacate the property for a 3 day period to allow for the "tenting" of the structure. Although it is the seller's responsibility to have the fumigation complete prior to the close of escrow, in special circumstances it is possible that the buyer may agree to have this fumigation take place after the close of escrow, if the lender will allow it.
If the parties to the transaction agree to fumigate the property after the close of escrow, the seller will usually leave funds in escrow equal to one and one-half times the dollar amount of the termite report estimate. PROPERTY APPRAISAL
Whether or not the buyer's offer is contingent upon the appraisal, if there is a loan involved in the sale, an appraisal of the property will probably be ordered by the bank. The appraisal is paid for by the buyer (borrower), usually in advance. The seller or seller's agent provides access for the appraisal and often gives the appraiser recent comparable sales in the surrounding area to justify the sales price. This formal appraisal is sometimes subject to a secondary "review appraisal" during the week prior to closing.
CLOSING THE ESCROWMuch of the activity geared towards closing the escrow takes place during the last week of escrow.
The process is somewhat structured, with a few variations possible. FORMAL LOAN APPROVAL
Although it is nice when the formal loan approval takes place early in the escrow, in many cases the formal loan approval takes place during the last week or so prior to the scheduled closing date. Loans are often approved with conditions, also called "prior to doc" conditions. These conditions are usually minor paperwork needs required by the lender or the investor which must be satisfied prior to the buyer signing loan documents. Occassionally one of the loan conditions is a review appraisal. This is a last minute review of the property, often just a drive-by, to confirm that the original appraisal is legitimate. Although review appraisals are usually just a formality, if there is a significant discrepancy between the review appraisal and the original appraisal, this issue must be resolved before the buyer's loan will fund. Once the loan conditions are met, the pace towards closing becomes more important.
BUYER'S FINAL WALK THROUGH
Now that the buyer has completed the obligation of formal loan approval, the buyer now has the option of performing a final walk-through inspection of the subject property. The purpose of this non-contingent walk-through is to verify that the repair work agreed upon by the seller has been performed and to confirm that the seller has maintained the property throughout the course of the escrow, as stipulated in the original purchase contract. REVIEW APPRAISAL
A Review appraisal can be a wild card before the close of escrow. In many sales an appraisal review never takes place. However, since it is a possibility, it is something buyers and sellers should be aware of. The review appraisal is the lender's way of making sure the property is adequate collateral for the loan. Many lenders got stuck making loans on over-valued properties in the early 90's and vowed to never walk down that road again. With high loan-to-value loans, an appraisal review can make or break a sale.
If, for example, the buyer has a minimal down payment and the appraisal review comes in at a lower price than the sales price, the lender will only lend on the property based on the loan to value of the appraisal review. This means the parties to the transaction will have to scramble to find a way to fill this new gap, either by having the buyer place more money down, having the seller lower the sales price, or some other creative solution. Since the appraisal review often comes just prior to closing, it usually does not leave much time for solutions if the transaction is to close on time. Asking the lender in advance about the possibilty of a review appraisal is a good idea for low down payment loans. LOAN DOCUMENTS
After formal loan approval has been given to the buyer and the buyer's final walk-through has been performed without issue, loan documents are drawn up by the lender. Drawing up loan docs can usually be done within 48 hours of requesting them, unless the lender is burdened with an excessive amount of loans at one time, such as prior to a holiday weekend or at the end of a busy month.
Once the loan documents are ready they are delivered to escrow for the buyer to sign. Once signed, the documents are returned to the lender to be reviewed, prior to funding. TITLE DATE DOWN
With little fanfare to the parties of the transaction, the title insurance company will usually perform a "date down" prior to the close of escrow. This is a final search to check for liens, judgements, or other issues affecting title that may have recently been recorded against the subject property. If no surprises are found, closing should take place as scheduled. If a last minute problem is discovered during the date down, closing could be delayed until the issue is resolved. One way to help the title company in avoiding any last minute surprises is for the buyers and sellers to provide a completed Statement of Information (also known as an S.I.) as soon as possible after the escrow is opened. PROVIDING THE DOWN PAYMENT
Buyers sometimes bring their down payment into escrow at the same time they sign the loan documents.
If these funds have not been brought in at that time, the lender will usually require that the funds be deposited in escrow 24 hours prior to funding the loan. The funds brought into escrow must be certified, such as a Cashier's Check, or can be wired to escrow if this has been arranged in advance. FUNDING THE BUYER'S LOAN
It generally takes a day to review the buyer's loan documents before the lender will fund the loan, however, there are some exceptions to this format. Generally speaking, if a buyer's loan documents are signed and returned on a Wednesday morning, many lenders will be able to fund the loan on Thursday, with the goal of recording the deed the following morning at 8:00 a.m. If a problem has been discovered when the lender is reviewing the executed loan documents, the close of escrow may be delayed until the error has been corrected. RECORDING THE DEED
The recording of the Grant Deed is the final element in transferring title from seller to buyer.
The title company will take the deed to the County Recorder's Office early on the morning of closing. The title company will try to have the deed recorded at 8:00 a.m. at the clerk's window. The reason for this early recording is to make sure no other liens or encumbrances have the chance to become recorded prior to the deed, to help with a clean title transfer. The deed is then reviewed by the clerk for any errors, such as missing signatures or notary stamp problems. If the clerk is satisfied that the document is recordable, it gets time-stamped and becomes officially recorded. If there is a problem with the document, the deed gets "pulled" and the document will have to be corrected before it can be recorded at a later date. CONFIRMATION OF THE RECORDING
Even though the deed has been recorded, none of the parties to the transaction are aware of the recording when it takes place.
The title company does not usually relay the confirmation to the escrow officer until several hours after the actual recording. On busy days prior to long holiday weekends, or at the end of a very busy month, confirmation can sometimes be delayed until later in the afternoon and in some extreme cases, until the following day. Since all parties are waiting to get confirmation, it can be frustrating when this delay takes place. KEYS AND PROCEEDS
Once the parties to the transaction have received knowledge of the confirmation, the buyers are usually ready to occupy the property. The keys are often given to the buyer via the buyer's agent. The seller's proceeds are usually ready in the early afternoon, once the title company has had the chance to balance the file and coordinate the closing with the escrow officer. Unless otherwise instructed, the seller's proceed check will be made payable to the owners of record.
FOLLOW UPSometime after the dust settles, the seller will want to review the Final Settlement Statement to see if any mistakes were made with the seller's proceeds. The seller should also be sure that the utilities on the property have been taken out of their name and can now contact the insurance company to confirm the sale of the home and request a refund for any premiums paid in advance. It is usually a good idea for the seller to give their real estate agent a forwarding address and phone number, in case any loose ends come up after the closing. The agent representing the buyer will usually see to it that the buyer receives a confirmation number for the one year home warranty policy, as well as the contact phone number for the insurance company providing the service.
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