Buying a Home in California

Contents

  1. Introduction
  2. Real Estate Agents
  3. Agency
  4. Finding the Right Home/Neighborhood
  5. Making an Offer
  6. The Counter-Offer
  7. Opening Escrow
  8. Inspecting the Home
  9. Title Report and Title Insurance
  10. Loan Approval
  11. Close of Escrow
  12. Wrap-up

Introduction - (Back to Contents)

The home buying process in San Diego county California has some differences from what is commonly accepted in other parts of the country.

First of all, we don't use attorneys to consummate real estate sales, which is common practice on the East Coast. We do use something called escrow. After you've found the home and begun negotiations, you'll begin hearing about "opening escrow" and "closing escrow". We'll talk more about escrow further on.

Also, forget about having a final closing meeting. Very rarely do the buyers and sellers even meet each other.

Another thing to keep in mind is to get your loan in place before you go shopping for a home.

Real Estate Agents - (Back to Contents)

In California anyone who offers to buy, sell, or lease real property for compensation must be licensed. There are two types of licenses given by the state: Brokers and Salespeople. Any broker or salesperson can also be referred to as a sales agent. It is important to remember that only Brokers can receive compensation for the sale or lease of real property. Therefore, every salesperson must work for a broker. Brokers can also work for another broker. When doing so, they function as sales agents and not as the Broker of Record. The Broker of Record is the person who assumes all responsibility for supervising the sales agents.

Agency - (Back to Contents)

Agency is one of the more arcane aspects of real estate law in Arizona. It includes sub-agency, dual-agency and buyer's agency. Agency is in a state of flux at this moment in many parts of the country. Suffice it to say, unless you have signed a contract delineating your agency relationship, the agent you are working with may not owe his primary fiduciary responsibility to you. For a full discussion of agency, click here.

Finding the Right Home/Neighborhood - (Back to Contents)

This is the first task your agent will perform for you, and it is probably the least important. Before driving all over, your agent will conduct an interview to determine if you are ready, willing and able to buy a home. Don't take this personally, the seller wants to know. Plus, the more ready, willing and able you are to buy a home, the better price you will get.

It's funny how that works sometimes. We've shown people the perfect home at the best price and they decided to wait. One day, one week, it didn't matter. When they finally decided to buy, that house is invariably gone.

Next, the agent will inquire as to the details of the home you are looking to buy. This way the agent can bring you directly to the most suitable homes on the market.

If the first thing an agent wants to do is pop you in his car, go find another agent. Driving willy-nilly around the Desert is an exhausting experience. No experienced agent drives people around without a qualifying interview first.

You do want an experienced agent, don't you?

Also, a good agent will have you begin the loan process immediately. We're not talking about getting pre-qualified, we're talking about getting approved for a loan. This will put you in the strongest possible negotiating position next to buying with all your own cash.

Making an Offer - (Back to Contents)

Here is where your agent really begins earning his keep. After you have found the home you want to buy, it's time to make an offer. Offers are always in writing. There's a saying in Arizona that an offer is only as good as the paper it's written on.

All details of the offer are entered on this form, including the description of the property, the price offered, financing terms, duration of the offer, rights of the buyer to inspect the property, which party will pay which fees, etc.

Your agent will assist you in setting an opening offer price by providing a list of homes sold recently similar to the one you are interested in buying. Along with your offer it is customary to provide a "good faith" deposit check of at least 3% of the offered price.

Your agent will then present the offer to the sellers and their agent.

The Counter-Offer - (Back to Contents)

There are two parts to an offer: the price and the terms. Usually you will offer less than the asking price. If it's a seller's market, meaning there are many buyers vying for the same property, you may offer more. In any case, there will more often than not be a counter-offer.

The sellers will counter your offer in writing. The counter-offer will say, in effect, "I agree with your offer except as follows: ...(enumerate the changes the seller requests)." The buyer can respond with a written "counter-counter-offer," and the offers can go back and forth until there is final agreement, or until one of the parties will no longer respond.

Opening Escrow - (Back to Contents)

Once the offer is agreed to by all parties concerned, the agent will take the written final agreement and the deposit check and deposit them "in escrow." Escrow will then be deemed open.

The purpose of an escrow is to enable a buyer and seller to deal with each other without risk. Before title to the property can be transferred to the new buyer, the buyer must deposit into escrow all monies necessary to pay for the home. This is most commonly done when the buyer obtains a loan. Then, the seller must be paid, the seller's old mortgage paid off, and any other liens on the property must be paid off. All responsibility for handling funds and documents is delegated to the escrow holder, a neutral third party, which is usually a title insurance company or escrow company.

Your title insurance officer can answer many of the frequently asked questions about title insurance, preliminary reports, and alternative ways of holding title to property in California. In a simple transaction, the buyer delivers the agreed upon funds to the escrow holder. The buyer also instructs the escrow holder to deliver to the seller the stated sum only after all conditions have been met, and title is vested in the buyer. Concurrently, the seller deposits his deed and other documents with the escrow holder, authorizing their delivery when the buyer has deposited the agreed purchase price. The contracting parties deposit funds or documents with the escrow holder, for delivery to the respective parties upon performance of all conditions of the agreement.

Inspecting the Home - (Back to Contents)

Most contracts provide that the buyer may, at his own expense, have the house inspected by professionals. Typical inspections include pest (termite) inspection, contractor inspection (includes electrical, plumbing, heating systems), roof inspection, swimming pool inspection, foundation and soil inspection.

These inspections may reveal defects which were not evident to the buyer, and which were not disclosed in the seller's disclosure statement. Depending upon the terms of the Deposit Receipt, the buyer may request the seller to either fix the defect, or provide funds so that the buyer can correct the defect after close of escrow.

Your agent can assist you in choosing competent inspectors and will arrange their appointments and be present while the inspections are being conducted.

Some inspections become mandatory by the lending company. Most lending companies require, at least, a termite and a roof inspection before they will loan on the property.

Title Report and Title Insurance - (Back to Contents)

In California the title of the property is searched by a title company and a preliminary report is issued on the condition of the title, for the buyer's approval. The report would include such information as present ownership, legal description of the property, any existing liens or unpaid taxes, any easements, and other covenants, conditions, or restrictions. A policy of title insurance will usually be issued at close of escrow. A title insurance policy insures the buyer's interest in his purchase, and the priority and validity of any loan. It is a contract to indemnify against loss through defects in the title.

Loan Approval - (Back to Contents)

The buyer is responsible for applying for his loan. When the buyer's loan is approved and documents are ready for signature, the lender delivers the documents to the escrow holder, usually a week before the closing date. The buyer signs all loan documents ahead of the closing date, and the seller signs the deed a few days before closing. One or two days before closing the buyer delivers the remainder of the down payment to the escrow holder. To avoid delaying the closing, the buyer should transfer his down payment funds to a local bank well ahead of close of escrow.

Close of Escrow - (Back to Contents)

After both the buyer and seller have complied with all agreed-upon terms, the escrow is "closed," and the deed is recorded with the County Recorder. The escrow company notifies the agents that the title is recorded and on that day the property belongs to the buyer. There is no need for a final meeting of the parties, since all documents had been signed prior to the close of escrow, and had been delivered to the escrow holder. Sometimes the seller needs to remain in the property after the close of escrow; this holding over is handled by a separate agreement. After the close of escrow the parties will be given a settlement statement, showing the charges and credits for each party.

Wrap Up - (Back to Contents)

The above description covers the customary steps in buying and selling a home in California. Most California residential transactions are completed without the assistance of an attorney. However, buyers and sellers who have legal or tax questions are urged to obtain advice from their attorney or tax professional. While the above material is summarized from sources deemed reliable, it is not guaranteed to apply to all transactions, since other conditions may apply, and each real estate transaction has its own unique characteristics.