/ Guide
Escrow Inspections and Appraisals
The Process, Step-by-Step
The Initial Agreement and Deposit.
Once all parties sign the purchase agreement, escrow will be opened, and wire instructions will be provided for your 3% earnest money deposit. It’s essential to complete this transfer promptly to keep the transaction on schedule. For added security, we recommend verifying the wire instructions directly with the escrow officer to prevent any potential fraud. This step ensures a smooth and secure process as you move forward with your home purchase.
Keep Records and Stick to the Timeline
It’s always beneficial to keep written records of every agreement. For clarity, transcribing any verbal agreements—like counter-offers or addendums—and converting them into written agreements ensures that both parties are on the same page. We’ll take care of drafting all necessary paperwork for your purchase and make sure you receive copies of everything for easy reference.
Now that your offer is accepted, both you and the seller will follow a structured timeline to complete each step of the process. Key milestones include the inspection, appraisal, and securing financing. We’ll be here to guide you through each stage and keep everything on track, so you can focus on a smooth transaction.
The Escrow Company & Title Insurance Company
In California, escrow and title companies play essential roles in real estate transactions, providing security and clarity to both parties throughout the process.
An escrow company acts as a neutral third party responsible for managing the funds, documents, and key steps of a real estate transaction. Once a buyer and seller have signed a purchase agreement, the escrow company opens an account and holds the buyer’s earnest money deposit. They ensure that all conditions of the purchase agreement are met before releasing funds. Escrow companies handle tasks such as coordinating inspections, facilitating the exchange of documents, and distributing funds upon closing. In California, the escrow process is highly regulated to provide transparency and prevent conflicts of interest.
The title company’s main role is to ensure that the property’s title is clear of any liens, claims, or ownership disputes. They conduct a thorough title search to verify the seller’s legal right to transfer ownership and provide title insurance to protect both the buyer and lender from potential title defects. Title insurance in California is typically a one-time premium paid at closing, offering ongoing protection against undisclosed issues, such as liens or ownership claims, that could arise in the future.
How to Hold Title.
In California, property ownership (or “holding title”) can be structured in several ways, each with its own implications for taxes, legal rights, and inheritance. Here’s an overview of the most common ways to hold title in California
Sole ownership is common for single individuals or those who prefer complete control over the property. In the event of the owner’s death, the property goes through probate unless it’s included in a trust.
For married couples, California offers the option to hold property as community property. This type of ownership assumes that each spouse has an equal, undivided interest in the property acquired during the marriage. Upon the death of one spouse, the surviving spouse retains their half and may inherit the other half depending on the estate plan or will. Community property can provide tax advantages, such as a “step-up” in basis for both halves of the property upon a spouse’s death, which can reduce capital gains taxes if the property is later sold.
Similar to community property, this structure allows married couples to hold title with the added benefit of automatic transfer to the surviving spouse upon one spouse’s death, bypassing probate. This structure combines the benefits of community property (including the tax advantages) with the ease of survivorship.
Joint tenancy allows two or more people to hold equal shares in a property with rights of survivorship. This means that upon the death of one owner, their share automatically transfers to the remaining owners without going through probate. Joint tenancy is commonly used among married couples, family members, or even unrelated individuals. However, it does not provide the same tax advantages as community property in California.
Tenancy in common is flexible and allows two or more people to hold unequal shares in a property. Each owner has the right to transfer or will their interest independently. Unlike joint tenancy, there is no right of survivorship, so if one owner passes away, their share goes to their heirs rather than automatically to the co-owners. Tenancy in common is often used for investment properties or partnerships where each party has specific ownership interests.
Holding property in a trust provides several advantages, including privacy, probate avoidance, and estate planning benefits. When property is held in a living trust, the trustee manages the property according to the terms of the trust agreement. Upon the owner’s death, the property is transferred according to the trust’s terms, avoiding probate and allowing for more seamless asset distribution to heirs. Trust ownership is common among individuals with substantial assets or those seeking to simplify inheritance matters.
Inspections.
Once your offer is accepted by the seller, you will need to have a licensed property inspector inspect the property within the time frame that was agreed upon in the effective contract to purchase. You may elect to have different inspectors inspect the property, if you wish to obtain professional opinions from inspectors who specialize in a specific area (eg. roof, HVAC, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution. We can recommend several different inspectors.
Depending on the outcome of these inspections, one of two things may happen:
1. Either each milestone is successfully closed and the contingencies will be removed, bringing you one step closer to the close, or
2. The buyer, after reviewing the property and the papers, requests a renegotiation of the terms of contract (usually the price).
Appraisal and Lending.
It is imperative that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution, via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. Appraisers are specialists in determining the value of properties, based on a combination of square footage measurements, building costs, recent sales of comparable properties, operating income, etc. When you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.
Homeowners Association Approval.
When buying a property within a community governed by a Homeowners Association (HOA), it's crucial to thoroughly review all HOA documents, including the Covenants, Conditions, and Restrictions (CC&Rs).
The CC&Rs outline the specific rules that all homeowners in the community must follow. These rules cover various aspects, from property appearance to permissible modifications, parking regulations, and pet restrictions. By reviewing the CC&Rs, you’ll understand what you can and cannot do with the property, helping you avoid surprises later on.
The CC&Rs outline the specific rules that all homeowners in the community must follow. These rules cover various aspects, from property appearance to permissible modifications, parking regulations, and pet restrictions. By reviewing the CC&Rs, you’ll understand what you can and cannot do with the property, helping you avoid surprises later on.
HOA documents include financial statements, budgets, and reserve studies that reveal the association’s financial health. This information is essential to gauge whether the HOA has sufficient reserves for major repairs (like roof replacements or road maintenance) or if it’s likely to impose special assessments on homeowners. A financially stable HOA is less likely to raise fees unexpectedly, ensuring a predictable financial commitment for you as the buyer.
The HOA documents will specify your monthly or annual dues and detail any upcoming special assessments. Knowing these costs upfront helps you assess whether the ongoing financial obligations align with your budget. Special assessments can be costly, and reviewing the documents will help you understand the potential for future increases or additional expenses.
The HOA’s rules may influence your lifestyle, such as restrictions on rentals, landscaping, noise levels, and even holiday decorations. Reviewing these documents gives you clarity on whether the community’s rules match your personal preferences and lifestyle. For example, if you plan to rent out the property, it’s essential to know if short-term or long-term rentals are allowed.
HOA documents often outline the procedures for handling disputes between homeowners and the HOA or between neighbors. Understanding these processes can help you know what to expect if any issues arise. Additionally, reviewing enforcement policies will show how strictly the HOA manages rule violations, ensuring you’re comfortable with their approach.
Property Insurance.
If you are obtaining a loan, you will be required by your lender to purchase a certain amount of insurance on the property. The value will depend on the lending institution and the purchase price of the property. You may be able to save hundreds of dollars a year on homeowners insurance by shopping around for insurance. You can also save money with these tips.
- Consider a higher deductible. Increasing your deductible by just a few hundred dollars can make a big difference in your premium.
- Ask your insurance agent about discounts. You may be able get a lower premium if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. Persons over 55 years of age or long-term customers may also be offered discounts.
- Insure your house NOT the land under it. After a disaster, the land is still there. If you do not subtract the value of the land when deciding how much homeowner’s insurance to buy, you will pay more than you should.
We will be happy to recommend experienced knowledgeable insurance agents for every property type.