The process of purchasing a home is a complex and exciting journey, and the escrow period plays a pivotal role in making your goal of home ownership a reality. If you're buying a home in a non-attorney state, it's essential to understand the ins and outs of the escrow process. In this blog, we'll break down an escrow timeline to help you navigate this crucial phase of your home purchase.
Understanding Escrow in Non-Attorney States
Escrow is a specific period during the home buying process when an impartial third party, typically a title/escrow company, takes charge of the exchange of payment for the property. The main purpose of the escrow period is to ensure that all parties involved in the transaction follow through with their obligations and the property transfer is conducted smoothly and fairly.
Your real estate advisor will be able to speak to and guide the time table of events which take place during the escrow period for the market you are purchasing in. The dates for specific events will be outlined in the initial purchase agreement and or subsequent counter proposal from the seller or amendments while under contract.
Here, we'll explore the escrow process and timeline of common conditions, which typically spans about 30 days from the acceptance of an offer to the closing of escrow.
The Escrow Timeline
Day 1–3: Initial Deposit
Within the first couple of days of going under contract the buyer is typically required to make an initial deposit. This deposit serves as a good faith gesture and demonstrates your commitment to the purchase. Each market has a typical amounts for the good faith deposit, but generally speaking it usually runs between 1 - 3 percent of the purchase value. The good faith deposit amount is often linked to a Liquidated Damages clause in the purchase agreement.
Day 3-10: Schedule Property Inspections
As soon as the offer is accepted, the clock starts ticking on the escrow timeline. One of the first tasks is to schedule property inspections. In Metro Denver there are three common inspections which usually happen immediately; home inspection, radon inspection, and sewer line inspection. In some cases it may be necessary to have additional inspections which may include but are not limited to; termite or pest inspection, roof inspection, soil inspection, or structural engineer’s inspection. These inspections are vital to identify any potential issues with the property before finalizing the transaction.
Day 7-14: Seller Disclosures
It most cases it is common for the seller to provide disclosures to the buyer/s of the property in the local Metro Denver market. The most common seller disclosures include, but are not limited to; Seller’s Property Disclosure, Source of Water Disclosure, Square Footage Disclosure, and Lead Based Paint Disclosure. The seller may also provide receipts for work performed, home renovation project plans, inspection reports they have on hand, and/or homeowners association documents during this time period. If the home is located in a homeowners association it is common to receive a catalog of information about the association, the budget, any proposed projects in the community, newsletters, by-laws, etc.
Day 7-14: Title Commitment
There are two types of title insurance policies: an owner’s policy and a loan policy. The owner’s policy protects the homebuyer whereas a loan policy protects the lender. If you are purchasing the home using loan financing the lender involved will usually require a loan policy when they issue you a loan. As the incoming homeowner you will have the opportunity to review the title report to ensure it is satisfactory.
When a property is financed, bought or sold, a record of that transaction is usually filed in public records. Other events that may affect the ownership of a property, like liens or levies, are also archived in the public records. Prior to closing, the title company will issue a title commitment that lists requirements that must be met to clear any defects in title. Once the requirements are met closing may take place.
Day 10- 20: Inspection Contingency and Request Repairs
It is common to conduct inspections on the home you are under contract to purchase. You will likely receive reports for the inspection/s performed. It's crucial to review these reports with the inspector and/or your real estate advisor carefully to identify any issues that may need attention, or items which require further investigation.
It is common for buyer’s to include an inspection contingency in the purchase agreement. An inspection contingency allows the buyer/s to retain their right to conduct inspections and negotiate for either a credit or repair from the seller for any unsatisfactory inspection item, or to walk away from the deal. The request for repairs or credit from the buyer to the seller must fall within the timeline of events written into the mutually agreed upon purchase agreement for the buyer to retaie their initial deposit
Day 10-20: Appraisal and Appraisal Contingency
When a home purchase is made using a loan to finance the purchase it is likely the lender will require an appraisal of the property. Once the appraiser has conducted their evaluation of the property a report will be issued outlining the various comparable sales and the appraiser/bank derived value of the property. It is common for a home buyer to include an appraisal contingency in their offer to the seller. The appraisal contingency affords the buyer the right to negotiate the offered value, or walk away from the transaction, should the appraiser/bank-derived value come in shy of the agreed upon purchase price amount in the mutually executed purchase agreement.
Day 21-27: Clear To Close
A clear to close from the lender means that the mortgage underwriter assigned to review your loan has found it satisfactory. The clear to close marks a significant milestone that means you are days away from the lender funding the loan, settling, and closing the transaction.
Day 27–30: Delivery of Buyer's Closing Funds
Once the clear to close has been issued and final settlement numbers issued to both buyer and seller, the buyer will need to deliver closing funds to the escrow company. These funds cover the remaining balance of the purchase price, as well as any closing costs and fees.
Day 28-30: Final Walk-Through
Within about five days of the target closing date, you'll have the opportunity to conduct a final walk-through of the property. This is your chance to ensure the property is in the same condition as when you made the offer and that any agreed-upon repairs have been completed.
Day 29: Lender Delivers Loan Funds to Escrow
Your lender will deliver the funds for your loan to the escrow company. This is a critical step to ensure that all financial aspects of the transaction are in place.
Day 30: Signing of Documents and Closing of Escrow
The moment you've been waiting for! It is common to sign documents at the designated title office, with your designated title representative and real estate agent. Escrow closes, the title to the property is officially recorded in your name, and you receive the keys to your new home. Congratulations, you're now a homeowner!
The escrow process is a well-structured and critical part of the home buying experience in non-attorney states. By understanding the flow of the transaction, and following the specific timetable in your purchase agrreement, you can confidently navigate the journey to homeownership while ensuring a smooth and successful property transfer. Whether it's your first home or your fifth, knowing the steps involved in escrow can help you enjoy a stress-free experience during this exciting time in your life.
