If you are in the process of buying Pebble Beach real estate, you have likely heard the term “escrow” by now. Although there are a few different types, we will be focusing on the specific kind as it relates to purchasing a residential property. With this in mind, let's explore the reasons an escrow account may be beneficial to you as a home buyer.
What is escrow?
According to Investopedia, escrow is a legal arrangement between two parties whereby a third party holds money in a separate account for safekeeping. Typically, the capital in question is earnest money or the deposit a buyer pays when an offer is made on a home, as this demonstrates they are serious about buying the property. The escrow account can be managed by an agent or title company and is held until the conditions of the sale are met. Escrow works to protect the buyer and also serves as a guarantee for the seller.
What happens during escrow?
The escrow process happens from the minute a seller accepts a buyer’s offer and contingencies on a Carmel-by-the-Sea real estate or any other piece of property. With the help of an agent such as Canning Properties, the buyer and seller agree on the amount the buyer will offer as a deposit – otherwise known as earnest money. Then, the buyer’s agent will open an escrow account where the funds will be held until the conditions of the sale are met. Agents like the team at Canning Properties employ their trusted relationships with other professionals to guarantee a smooth escrow process.
Depending on the type of home purchase, there could be a number of things that need to happen during escrow. Typically, the buyer has already received pre-approval for financing before making an offer. After the offer is made, the buyer will need to contact the loan officer, procure financial documents, and start the process to secure financing for the amount they established in their offer. While preparing financial documents, the buyer may also get to work on an appraisal or inspection as specified in the contingencies of the offer.
Depending on discoveries made during the inspection process, the buyer has the ability to amend the list of contingencies or items the seller is responsible for updating and fixing before the closing. This may include projects like patching walls, updating certain appliances, or repairing parts of the roof. This should always be a discussion between the buyer, seller, and any agents working on their behalf.
After this discussion, the buyer will contact a title company of their choice to begin the underwriting process. If during the underwriting process the sale does not go through due to the fault of the seller, then the money is returned to the buyer. Such issues could include liens or judgments on the home. However, if the sale does not go through due to the fault of the buyer or if they cancel the sale for any reason during this process, the seller may be at liberty to keep the earnest money.
What due diligence should I do as the buyer?
The buyer has a responsibility to confirm the property is in good condition – an assessment that can be tough to gauge at the time of purchase. At this point, the buyer has likely only seen the home’s exterior and interior during a walkthrough. However, there could be multiple issues with the property which are not visible to the eye during these quick tours. After an offer is made and during the escrow process, it is crucial the buyer completes a home and roof inspection and do their homework on the area in which they are purchasing.
For example, the buyer may place an offer on the home. However, until a full inspection is done on the property, the buyer does not know what lies beneath the surface. Are the pipes in top condition? Is the HVAC in working order? Is there water or termite damage? These questions can all be answered by a home inspector and will give the buyer a better understanding of the condition of the property. Additionally, a roof inspection will alert the buyer to the remaining life of the roof as they should be replaced about every twenty years and can be one of the more costly home improvements. If the inspection states the roof is eighteen years old or has water damage, this may be something to discuss with the seller after the inspection.
Lastly, the buyer should have a strong grasp of the area they will be moving into. When making an offer on a home, perhaps you will want to drive by the property and surrounding area at differing times of day to get a feel for the neighborhood. If you are looking for an area to raise your children, consider the proximity to parks and playgrounds and how family-friendly the neighborhood is.
What is contingency removal?
Simply put, contingency removal is a date wherein the buyer removes such clauses from the contract and could include items such as appraisals or inspections.
For example, let’s say you put an offer in on a home on March 15 with a contingency removal of ten days. As the buyer, you may have included a clause stating you would like to commission an inspection on both the roof and the entire property. So, beginning March 15, you now have ten days to complete those inspections and renegotiate any contingencies on the offer. In this process, you could discover a leak during the roof inspection, and then you now have until March 25 to ask the seller’s agent to include a fix for the roof into the contract before closing or agree to take on the repair yourself. Once the date for contingency removal has passed, the buyer no longer has negotiating power and the original offer stands as-is.
If you need assistance in your Pebble Beach or Carmel-by-the-Sea real estate transaction, please don’t hesitate to reach out to the team at Canning Properties Group for expert guidance. They offer escrow support and quick turnaround times with their in-house team of transaction coordinators. Canning Properties takes pride in the countless buyers they’ve guided through the tricky escrow process, and are eager to answer any questions you may have.
