Are You Ready To Submit An Offer To Purchase A Home?
by Sheri Dettman, Resort Lifestyle Realtor
Having your agent submit a purchase offer for a Palm Springs area property is only the first step in buying a home. Submitting an offer and buying a home are really two separate things in California where the purchase offer is not the final negotiation due to possible contingencies in the real estate contracts.
The Usual Steps In Purchasing A Palm Springs Area Home
- Buyer’s Agent Submits Your Offer
- Escrow Account Opened
- Contingency Period Begins
- Contingencies Removed or Purchase Canceled
- Monies are Collected
- Transaction is Completed
- About Earnest Money Deposits
1. Your Agent Submits Your Offer
When your agent submits an offer for you she/he will generally give the seller a set period of time in which to respond, which is normally between one and three days. After your agent submits an offer one of three things usually occurs: your offer is accepted as is, the seller will counter your offer with a different price or terms or the seller ignores your offer.
2. An Escrow Account Is Opened
Once an offer is accepted, an escrow account is opened. In escrow, all documents and monies are held by a neutral third party for use at a later date to fulfill obligations as called for in the purchase contract. As an explanation for Canadian clients, escrow handles most of the duties that a Canadian real estate lawyer handles.
3. During Your Contingency Period
Your purchase contract will generally have a contingency period during which time you can change your mind and cancel a contract without penalty. Your agent will work with you to specify how long your contingency period is and what is covered in the contingencies before your offer is submitted. Exceptions to this include bank-owned properties or short sales in which the bank spells out the time frame for removing any possible contingencies.
Most buyer’s agents will include a contingency period when submitting an offer. A contingency period is a time frame which enables you to perform due diligence and basically cancel the contract without penalty and receive your earnest money (1) deposit back. At the same time your agent will communicate the length of escrow you request. For example, if you choose a 30-day escrow, there are 30 calendar days from the date your offer is accepted until the home is yours.
During your contingency period, buyers typically complete the following with the assistance of their agent:
- Appraisal: Buyers who obtain a mortgage will be required to have an appraisal conducted, which your lender will order. The appraisal needs to value the home equal to your purchase price or higher. If the appraisal comes in low, additional down payment monies would typically be required if the seller decides to move forward.
- Loan Contingency: When buyers finance, their agent will stipulate in the purchase contract that loan approval is a contingency. A buyer who is denied a loan at the specified terms can be released from the purchase contract.
4. Professional Home Inspection
Your buyer’s agent will always suggest that you invest in a professional home inspection. For a few hundred dollars a professional home inspector will provide you with a complete report and photos documenting the home’s condition. If the inspection uncovers needed repairs, your agent can submit a request for repairs which can either be agreed to by the seller, negotiated, or denied. In any case, the buyer is aware of the condition of the home from a professional standpoint and can then negotiate how the recommendations will be covered financially or cancel the sale during the contingency period.
- Termite Inspection: Even though the Palm Springs area is a dry climate, a termite inspection is suggested and may even be required when obtaining a mortgage.
- HOA Documents: Buyers are entitled to receive a copy of the community CC&R’s (codes, covenants, and regulations) as well as recent HOA financials and the latest meeting minutes.
- Seller Statutory Documents: In California, sellers are required to disclose in writing all known material facts to the buyer. Material facts commonly refer to anything which would affect the buyer’s decision to purchase the home due to condition, price and/or terms the buyer has offered. Simply put, if the seller has knowledge that there is a defect, it should be disclosed to the buyer. Also in California, sellers are required to notify buyers if a death has occurred on the property within the last three years.
The California Association of Realtors publishes a number of disclosure forms that your buyer’s agent will go over with you. Your agent’s job is to make the disclosure and contingency period straightforward and easy to understand. During the contingency period you are entitled to cancel the purchase contract for any reason listed above, or if you’ve simply changed your mind.
5. Contingencies Removed or Purchase Canceled
Once all contingencies have been removed and you as the buyer agree to move forward with your purchase, you will sign off. From this point on escrow and the buyer’s agent will work together to ensure that all documents and disclosures have been completed. At this time the cash buyer or the designated lender will fund the transaction usually by wire through escrow. Escrow funds will be disbursed to pay either the owner or their bank (if they had a mortgage), the new title will be recorded with the county and the property is now yours!
About Earnest Money Deposits
In California and here in Palm Springs, earnest money is a good faith deposit. It is not a down payment towards a purchase. When your buyer’s agent fills out the contract they will specify how much money the buyer is initially putting up to secure the contract and show good faith. Earnest money deposits are typically 3% of the purchase price in California. During the contingency period a buyer may cancel a contract for any reason and be refunded their earnest money deposit. Once the contingencies have been removed and the time period for them has expired, the earnest money deposit becomes non-refundable and is credited towards the final purchase price.
Earnest money deposits are made either by check or bank wire payable to a neutral third (escrow). The earnest money deposit which is held by the escrow company is either refunded (if the sale is canceled during the contingent period) or applied towards the purchase price of the property if the purchase is completed.
Disclaimer: The above information is an overview and it is not intended to be legal advice or a legal interpretation of California Buyer Broker Agreements. If you desire legal advice please consult a real estate lawyer.