The escrow process sounds more confusing than it is. It’s pretty much just a timeframe for when you an accept an offer to when you complete the sale of your house. Here’s what it means to open and close escrow:
- The opening of escrow begins as soon as you accept an offer. Right after you accept an offer, you open an escrow account.
- The close of escrow occurs when the buyer officially takes possession of the property (normally, at closing).
Before you get to the close of escrow, there are crucial escrow steps you need to take. Learning what they are before you list your house can help the entire home-selling process make more sense.
If you’re selling your home for sale by owner (FSBO), you have to take the initial steps to open escrow, which means choosing an escrow company. An escrow company can be a title company, or you can just hire an escrow agent.
Normally, a real estate agent will guide you through the entire escrow process and open an escrow account. But if you don’t want to spend the typical 2.5-3% realtor’s commission fee, skip the hassle of selling FSBO and going with a low commission real estate company. We recommend our friends at Clever Real Estate, who can help sell your house for a 1.5% listing fee or a flat $3,000. You’ll get the same service as a traditional agent for a fraction of the price!
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First Escrow Step: Opening Escrow
Once you accept an offer, then you select an escrow officer or title company. To open escrow you simply send the purchase agreement to the escrow company via email, fax, mail or in-person delivery. Be sure to include the following:
- Property address
- Purchase price
- Escrow period (typically 30-60 days)
- Name of all sellers and their contact information
- Name of all buyers and their contact information
- Name and contact information of any agents involved
- Commission that will be paid to any agents
This will help clarify the details for the escrow officer and get the process started smoothly.
Typically, a real estate agent will recommend an escrow or title company. The agent sends you what you need to sign, reviews it, and sends it back to the escrow officer. This can be helpful, since a missing signature can delay the escrow timeline.
Reviewing the Escrow Package
The escrow company will mail you a package, typically within a week of opening escrow, with several documents for you to complete and sign.
You’ll need to review each document carefully and ensure the escrow instructions exactly match the terms of the purchase agreement.
Vital Escrow Step: Preparing Disclosures
You have to complete a list of legally required disclosure forms that will be provided to your buyer for their review. If you wisely completed your seller’s disclosure packet when you listed your home rather than waiting until you opened escrow, then this step is done in advance.
Disclosure forms and rushed timelines can be intimidating for sellers. There are a lot of documents and you have to be accurate about what you do and don’t disclose. Failure to adequately disclose certain things in accordance with state law can cause the buyer to sue you after the sale.
FSBO sellers should hire a transaction coordinator to help them prepare all the right documents. But we only recommend selling FSBO for real estate experts and people who really have the time and energy that selling FSBO requires.
For everyone else, we recommend going with a discount agent. That’s why we’ve partnered with Clever Real Estate. Clever is a free service that will match you with a top-performing local agent who can help sell your house for just a 1.5% listing fee. That’s a fraction of the 2.5-3% fee that traditional agents charge, plus you’ll get the same full service experience.
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Optional Escrow Step: Pest or Termite Inspection
Pest inspections and clearance certificates are often required to close escrow in areas affected by termites. Sellers are usually required to provide the pest inspection report to the buyer within 7-14 days of accepting an offer.
We recommend doing this prior to listing the home for sale so there aren’t any surprises during escrow. Doing so will also give you an opportunity to repair any damage caused by termites ahead of time and not delay the close of escrow.
» MORE: How Much Does a Termite Inspection Cost and Who Pays?
Necessary Escrow Step: Buyer’s Inspections
Depending on where you live, your buyer will typically be given 7 to 15 days from the time you accept their offer to conduct their inspections. You can negotiate the number of days on the offer, so be sure to read your contract to confirm the timeline.
These inspections can include a home inspection by a third party home inspector (which covers the HVAC, electrical, plumbing, and general condition of the home). The buyer will also need an appraisal if they are not a cash buyer.
We recommend you have a general property inspection done before opening escrow, and ideally, before you begin to receive offers on your home. Completing this inspection ahead of time can help you to shrink or eliminate your buyer’s allowable cancellation period and make it difficult for a buyer to ask for repairs after you enter escrow.
Optional Escrow Step: Buyer’s Request for Repairs
The buyer has the right to request repairs within their inspection period. However, you should know that you are not obligated to make any or all of these repairs, but you’ll probably need to negotiate and possibly offer some credits at closing.
It’s good practice to complete any repairs that you anticipate a buyer would request ahead of listing the home for sale. This gives your buyer fewer reasons to back out during escrow and will make your home more appealing during the marketing process.
You can get a pre-inspection to identify what buyers might expect you to fix. Alternatively, a good seller’s agent will be able to tell you what you can fix and what you should leave. There’s no point in fixing everything right away, as some buyers will care about some defects more than others.
Necessary Escrow Step: Contingency Removal
There are several contingencies in a purchase agreement that give the buyer a way to back out of escrow without penalty.
As such, it is critical that you ensure the buyer remove their contingencies the moment their contingency period expires.
Here’s a list of standard contingencies:
- Loan contingency
- Appraisal contingency
- Buyer’s investigation, including insurability
- Condo disclosures and CC&Rs
- Inspection contingency, which can include seller disclosures, a physical inspection report and pest report
- Title contingency
- Home sale contingency
In California, contingency removal form must be completed and signed by all buyers before they are removed. In all states, contingency removal is one of the most important steps to close escrow. Only when contingencies are removed is the purchase agreement considered binding.
If you’re lucky enough to get an offer with no contingencies, then you can skip this step. But most home offers include one or more contingencies.
» MORE: Everything You Need to Know About Contingency Removal
Getting Near Closing Time: Buyer’s Final Walk-Through
The buyer typically has the right to do a final walk-through of the property within five days before the close of escrow. This allows the buyer to confirm that the property is in the same condition as it was at the beginning of escrow and that all agreed upon repairs have been made.
Close of Escrow
Next, you will receive a final settlement statement from the escrow company that breaks down your selling costs usually within a day of closing. These costs are deducted from the purchase price, and you’ll find your net proceeds at the bottom of the page.
You can have the escrow company wire your sale proceeds directly to your bank account (usually for a small fee) or you can have them cut you a check. The check can be mailed or picked up in person.
Final Escrow Step: Possession
The purchase contract will explicitly state the date and time which the buyer receives possession of the property. Normally possession occurs the same day as close of escrow, or at the closing table. However, you may agree to give possession before or after close of escrow if you or the buyer need a few extra days to get things in order.
If you want to stay in the home past the close of escrow, be sure to sign an agreement with the buyer that outlines the terms of possession, such as the number of days you will stay and the per diem rent you will pay. Similarly, if you decide to leave early and the buyer would like to move in before closing, have an interim lease agreement drawn up for your protection.
Those are tricky situations. If you haven’t sold FSBO before, or you just want to find a great agent but not pay a hefty seller’s commission fee, we recommend Clever. Clever can match you with highly qualified local agents from brokerages like Keller Williams and Coldwell Banker, but unlike a traditional home sale, you’ll pay THOUSANDS less. Clever pre-negotiates the low listing fee of 1.5% for homes over $350,000 or $3,000 for homes below that amount.
Clever is free and there’s no obligation to continue if you can’t find an agent you love. Connect with a Clever agent today and find out how much you can save!
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