Logistics of Buying And Selling Real Estate Without A Realtor

With an attorney to assist you (rather than a real estate agent), buying or selling your home is actually quite simple and straightforward.  Here is a typical breakdown of the logistics & responsibilities, showing that most of the tasks are handled by the attorney, escrow, and lender:

Attorney

Seller

Buyer

Escrow

Lender

· Prepares the purchase agreement

· Answers all questions and guides the transaction

· Provides all necessary disclosure forms

· Reviews all documents

· Coordinates with all parties

· Lists the home for sale (here’s how, it’s easy)

· Shows the home to potential buyers (here’s how, it’s easy)

· Provides info about the property on disclosure forms and closing documents (it’s easy; your attorney helps you)

· Tours the home

· Hires any inspection contractors (it’s easy, most people use Yelp)

· Provides requested information to the lender (it’s easy)

· Reviews disclosure forms and closing documents (it’s easy; your attorney helps you)

· Provides title report

· Handles all funds

· Answers questions

· Provides closing documents

· Files and records all necessary documents

· Provides loan documents

· Answers questions

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — greg@gregglaser.com
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
http://www.GregGlaser.com

Understanding the Legalese in a Real Estate Purchase/Sale Agreement

As a real estate attorney, I help home buyers & sellers daily with their transactions, and I’m often asked to explain all that legalese in the standard purchase/sale contract::

  • As Is Sale – This means the Buyer is purchasing the Property in its current condition, whether that condition is damaged or pristine or anything else.  In other words, the Seller does not have a duty to fix anything before close of escrow or after close of escrow, unless the Seller expressly agrees in writing to fix something.  Technically, every sale is ‘as-is’ unless the contract specifies in writing otherwise.
    • Note 1: Even with an ‘as-is’ sale, the seller is required to provide written disclosures of material defects and relevant property history.  Here’s a tip for sellers: if you’re unsure whether something is ‘material/relevant’, you should disclose it, because anything you disclose cannot later be used against you in the event your buyer wishes to make a case for non-disclosure of material facts. Disclosure is your friend – it’s win-win.
    • Note 2:  Buyers still do inspections and keep inspection contingencies for ‘as-is’ sales.  Indeed, if the inspection uncovers serious issues (i.e., major termite damage), then often the buyer will request a contract amendment that gives the buyer a price reduction (or $ credit) to help the buyer pay for the needed repairs after close of escrow.  However, the seller is not required legally or contractually to agree to do repairs, and the buyer is also not required to close escrow (i.e., the buyer always has an inspection contingency to cancel unless they have already waived it), so the parties simply negotiate some form of arrangement if they would still like to continue with the purchase/sale.
    • Note 3: Technically ‘As-Is’ refers to the point in time when the buyer signed the contract for purchase.  So if the property was clean and the ceiling had no holes when the buyer signed the contract, then the seller needs to make sure the property is clean and the ceiling has no holes on the date for close of escrow.
  • Closing Costs – These are the costs or expenses that are typically associated with finalizing a real property sale.  They generally include escrow fees, title insurance, County transfer taxes, HOA fees, home warranty insurance, and home inspection costs.  They are itemized on a ‘estimated statement’ provided by escrow at the conclusion of escrow.
    • Note: You can ask escrow to provide you an estimated statement before you begin an escrow process. It helps you shop around for the best deal among escrow companies.
  • Contingency or Contingent – This means “it depends upon.”  The word is used in a legal sense to describe a ‘necessary event’ or ‘deciding event’ in the purchase/sale agreement, such as the buyer receiving loan approval from the buyer’s lender to go forward with the sale.   A contingency is typically used to benefit one party – for example, an inspection contingency benefits the buyer because it gives the buyer freedom – if the buyer exercises his contingency, then the agreement is terminated, he receives a refund of his deposit, and escrow is cancelled.
    • Note 1: The customary contract contingencies for home sales are (a) 17-days for inspections & other investigation such as title history, (b) 17-days for an appraisal matching the purchase price, and (c) 21-days for loan approval from the buyer’s lender.  In the typical contract, the buyer is free to cancel before expiration of any of his contingencies, and he receives a full refund of his initial deposit.
    • Note 2: the standard contract is not harsh or strict.  It automatically extends from day-to-day the contingency time periods (i.e., extending beyond the 21-days for loan approval) until the seller actively gives the buyer a written “Notice to Perform” document that requires the buyer to either release the contingency promptly or cancel the contract.  The reason for this leniency is simple: the standard contract encourages negotiation that can salvage transactions; it does not force a buyer’s hand to cancel, unless the seller actively wants to force the buyer to decide immediately whether to cancel or go forward.
  • Deed – The deed is the official record of who owns the property, and the original copy is held by the owner.  It is usually 1-3 pages long, and a copy is recorded at the County where the property is located.  Deeds are usually prepared by an escrow company.  There are multiple forms of deeds, but in real estate sales the customary deed is called a “grant deed”.  The deed specifies the manner in which the Buyer owns the Property, such as “Community Property,” or “Individually, as her Separate Property”, or “As Trustee for the Marshall Family Living Trust.”
    • Grant Deed – A grant deed contains the Seller’s promise that he (1) has not conveyed the same property (or any right, title or interest in the property) to any person other than the Buyer; and (2) the Property is presently free from encumbrances not otherwise disclosed by the Buyer.  This is the standard deed used for California home sales.
    • Quitclaim Deed – transfers to the buyer whatever rights and interests the seller has in the property.  When the seller is married but owns the property as his sole property, then title companies often ask the spouse to sign a quitclaim deed.
    • Warranty Deed  – These are the same as a grant deed, but contain the following additional promise by the Seller:  if any 3rd party later claims an interest in the Property relating to an encumbrance not previously disclosed by Seller, then the Seller will hire and pay an attorney for the Buyer in order to defend the title.   Warranty deeds are not very common in California, simply because grant deeds are so effective.
  • Down Payment – Not to be confused with the Initial Deposit (see definition above), the down payment is the money that the Buyer pays from Buyer’s own bank account (out-of-pocket) for the property at close of escrow.  The downpayment is the purchase price plus Buyer closing costs, minus the loan amount and minus the initial deposit.
  • Encumbrance – An encumbrance is a legal right or obligation attached to the property.  An example of an encumbrance is an easement.  Essentially, an encumbrance occurs whenever somebody (other than the property owner) legitimately claims some right in the land.  For example, if the property owner takes out a mortgage, then the lender will have a deed of trust on the land.  The deed of trust is an encumbrance.  Another example — if the utility company has a right to run telephone wires over the land, it would be an easement, which is an encumbrance.  Virtually all properties on the market have encumbrances.
  • Financing – Financing is money (or the process of obtaining money) from a lender, typically a bank.
    • Note: the term ‘seller financing’ refers to the process by which the seller acts like a bank to the buyer.
  • Initial Deposit This is also called “earnest money.” It is the amount the Buyer must pay at the signing of the agreement in order to begin the escrow process.  It goes toward (offsets) the purchase price.   This money will be refunded if the sale does not go through, assuming the buyer cancels within a contingency period.
    • Note: The initial deposit is usually 1% of the purchase price. In a seller’s market, where there are lots of potential buyers competing, sometimes this number is 3% or higher. Approximately 1-3 days after both parties sign the purchase contract, the buyer gives the initial deposit to the escrow company (by check or electronic funds transfer) for safe-keeping. This money counts toward a buyer’s home purchase (so for example on a $500,000 home purchase, after the buyer makes his initial deposit of $5,000, the remaining sum due at close of escrow is $495,000 at close of escrow).
  • Joint escrow instructions – These are written instructions that appear in the purchase agreement, and also the escrow company will have their own separate instructions.  They are essentially boilerplate written directions specifying how the escrow company will process and complete the sale for the parties.
  • Parties – This refers to the buyer and seller.
  • Personal PropertyThis is movable property that does not automatically get sold with the house.  For example, the bed in the master bedroom is personal property that the seller will take with them when they move-out.
    • Note: it is customary in home sales to include some items of personal property in the sale (i.e., appliances (stove, fridge, and/or washer & dryer), cans of paint in the garage, outdoor fountain).  Often the parties will only list the big items (i.e., appliances), and then they just verbally figure it out between themselves.
  • Preliminary Title Report –  In the typical transaction, the buyer obtains a preliminary title report from the escrow company, which will specify who owns the property, and whether there are any liens (mortgages), easements, or other restrictions (encumbrances) limiting anybody’s use and/or ownership of the Property.  It is a very helpful document because it shows the title history, including the seller’s current mortgage that will be paid off at close of escrow.  A preliminary title report is not an insurance policy.  It is what comes before an insurance policy is issued.  In a legal sense it is only an offer by the title insurer to issue a policy of title insurance, and may not contain every item affecting title.  At close of escrow, the preliminary title report is turned into an insurance policy, which means the title company is guaranteeing that the information on the document accurately reflects the title history of public records.  So if the title company made a mistake in checking the public records, then the title company will pay money and lawyers to fix it.
  • Property Accessories – Little things that are attached or that come with the land or home, such as the curtain rods and curtains, and the garage door remote control.  Compare Property Improvements (below).
  • Property Fixtures –  This is a legal term for things that are physically attached to the property and which cannot be removed from the property without damaging the property in some way (or basically requiring a handyman/contractor to remove).  Examples include:  ceiling fans, wall light switch coverings, built-in microwave.
  • Property Improvements – These are large things attached to the land or home.   For example, the home is an improvement on the land.  And the refrigerator is an improvement on the home.  Compare Property Accessories (above).
  • Purchase Price – this is the price of the Property agreed upon by the Buyer and Seller, excluding any closing costs).
    • Note: Most people choose the ‘market value’ as the purchase price (note that the purchase price does not include closing costs). Market value is considered the amount that a reasonable seller is willing to accept and that a reasonable buyer is willing to pay for the home. Historically and today, reasonableness is most primarily measured by ‘comparable sales’.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — greg@gregglaser.com
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
http://www.GregGlaser.com

Listing a FSBO on the MLS

To list your home on the MLS, you’ll need the services of a flat-fee MLS listing service.

But before you go forth and google just any ‘flat fee MLS website’, please understand that not all of them are created equal. It is important to choose wisely — do yourself a favor, do not try to save a few bucks by choosing the cheapest site for $149 or whatever it is.

Currently, I recommend the Gold Package from USRealty.com to my clients — and no, I have not been paid by USRealty.com to recommend their company. I have no personal or financial relationship whatsoever with USRealty.com. Rather, I’ve just been handling FSBOs for years and so I’ve worked with lots of different flat-fee MLS sites – in that process I’ve found USRealty.com (formerly Housepad.com) is the best one out there to meet my clients’ needs.

Basically, here are the things you need to know as a home seller to select the right flat-fee MLS agent:

  1. MLS Listing. Make sure you choose a package that actually puts your listing on the MLS. I know, this should be obvious right?! But often the cheapest package from an ‘MLS listing site’ will not actually list your property on the MLS, but rather will simply list it on miscellaneous real estate websites like Yahoo Real Estate, which you could easily do yourself.
  2. Automated Phone. When potential buyers call to inquire about your home, do the phone calls go directly to you as the seller, or do they go directly to the MLS agent’s office? Trust me, you want calls to go directly to you as the seller. So, sellers should make sure the MLS listing service offers call-forwarding or an automated phone message so that phone calls go directly to the seller. You do not want your flat-fee agent to be a middleman, because then the idea of a ‘dropped call’ will take on a whole new meaning to you. Indeed, you won’t even know if calls are being dropped; you’ll just be in the dark communicating with your middleman who is probably trying to upsell you regularly (see item 4 below on upselling).
  3. Commission. Some MLS listing sites will not allow the seller to list a commission offered to a buyer’s agent. This is not good for sellers trying to attract buyers – it is like telling agents to ignore your listing because they might not get paid. Unfortunately, there are some flat-fee MLS sites that do not tell you they created this limitation until after you’ve signed up – and then they will only fix their own limitation if you agree to pay them a commission. What a racket!Side Note to FSBO sellers: please do not offer buyer’s agents less than a 2.5% commission. In an MLS listing, the seller should always offer a 3% or 2.5% commission to a buyer’s agent. Do not offer more, and do not offer less. Anything lower than 2.5% looks weird/bad, and is the equivalent of the seller intentionally shooting himself in the foot – the seller might as well put a caged skunk on his front porch during an open house to scare away agents. Sure, a seller is free to do it, but would you care to guess what the expected response will be?
  1. Upsell. Some MLS listing sites are mere middlemen who refer sellers to local real estate agents who then try to upsell their services for a commission. It’s ridiculous! I’ve seen ‘flat-fee’ agents offer ambiguous contracts to try to trick sellers into agreeing to a seller’s agent commission. The cheaper the site, generally the more likely they are to try to upsell people. Again, what a racket!

Fortunately, USRealty.com passes all of my tests above for quality & integrity, which is why I recommend them to my clients: MLS listing, automated phone, buyer’s agent commission stated; and a clear MLS listing contract that does not try to upsell clients.

One caveat is that some FSBO sellers like to list an open house, but they might not be able to do so with USRealty.com.  Rather, for a flat-fee MLS company in California that allows you to list an open house and still meets my four criteria above, I recommend flatfeegroup.com

As an experienced FSBO lawyer, I want to see the customer-service model succeed because I think it should set an industry standard for MLS listing companies nationwide.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — greg@gregglaser.com
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
http://www.GregGlaser.com

Landlord-Tenant Home Sales

I routinely help landlords and tenants process their purchase-sale transaction with no realtors and no commissions. The process is very straightforward.

Here are some of the typical FAQs for the landlord & tenant home sale:

Question: Do we need to amend or cancel the lease?

Answer: No, the purchase contract is separate from the lease and need not be altered in any way. The lease will terminate automatically at close of escrow (the legal reason for this is the doctrine of ‘merger’). And of course, if the Buyer decides to cancel the purchase contract for any reason before close of escrow, the lease continues to remain in full force and effect.

Question: What should we do about the security deposit?

Answer: In about 90% of landlord-tenant transactions, the Seller/Landlord will authorize escrow to credit the Buyer/Tenant in escrow for a full security deposit refund at close of escrow. Obviously, this has the practical effect of reducing the Buyer’s purchase price (or closing costs) by the amount of the security deposit.  In a minority of transactions, the security deposit is handled outside of escrow — for example, if the Seller is doing a 1031-exchange, then it’s a good idea for accounting reasons to process the refund outside escrow, and then the landlord (in California for example) will simply refund the security deposit no later than 21-days after close of escrow.

Question: Can the Tenant help the Landlord complete the disclosure forms?

Answer: Yes, that is very common for the Tenant to provide some input on the disclosure forms. The reason for this is obvious – the tenant is currently living in the property and therefore has current knowledge of the property’s current condition. Disclosures are often a cooperative process, so that’s nice.

Question: Does the tenant need to do a contractor’s home inspection or pest inspection?

Answer: No, those inspections are not required by law. But from a practical perspective, the lender for the Buyer/Tenant may want to see an inspection report, and especially so if the appraiser highlights serious issues (i.e., roof missing shingles) during the appraisal.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — greg@gregglaser.com
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
http://www.GregGlaser.com

Buyer’s Corner: How to Increase the Attractiveness of your Real Estate Purchase Offer in a Seller’s Market

A seller who has received multiple offers wants to choose the one that is: (a) the right price, and (b) likely to close escrow.  Here are some tips for a Buyer to increase the attractiveness of his or her offer:

1. Increase the purchase price
The number one way to increase the attractiveness of an offer is with a high purchase price.  But you must be realistic, otherwise it works against you — a buyer who needs a loan to purchase cannot offer an unrealistic number, because it makes the loan less likely to be approved, and therefore makes the offer less attractive to the seller.  For example, if the buyer is only putting down 20% cash (and therefore needs a loan for 80% of the purchase price), then the buyer will likely need the property to appraise at the same number as the purchase price (or else the buyer will just cancel the agreement after the appraisal and get a refund of the initial deposit; putting the seller back to square one in looking for a buyer who can close escrow).  So a buyer should only raise the purchase price higher than the likely appraisal value if the buyer can put down cash of more than 20%.

2. Limit Contingencies
The standard purchase offer has an inspection contingency for 17-days and a loan contingency for 21days.  But these are negotiable.  A buyer can increase the attractiveness of his/her offer by reducing the amount of days for contingencies. For example, the buyer can usually complete all inspections in 10-days or less, so a 10-day inspection period is fine.  Loan contingencies are more difficult to shorten, because lenders need about 15-days minimum to get a loan commitment letter to the buyer.

In any case, a shorter contingency period is a way to emphasize to the seller that a buyer takes the as-is sale seriously, and will not keep the seller in limbo too long (waiting to hear if the buyer is able to remove the contingency).

A buyer can even waive contingencies altogether if the buyer feels very confident, but this is relatively uncommon.

3. Include a Cover Letter
A buyer can increase the attractiveness of an offer by attaching a cover letter highlighting how much the buyer likes the house and neighborhood etc, and how they are just fine with an as-is sale, and how much they look forward to closing escrow on time.

4. Short close of escrow
The typical escrow period is 30-days.  If the buyer is paying all-cash, they can close escrow in 10-days or less.  But if the buyer needs a loan, he or she cannot realistically shorten this period by anything more than 5-10 days (so, 20-25 day escrow total), because the lender needs time to get the loan approved by the lender’s underwriting department.

5. Increase the Initial Deposit
The typical initial deposit is 1-3% of the purchase price.  But a larger initial deposit (also called earnest money) is a way for the buyer to send a nice message to the seller that the buyer is quite serious about the purchase.  The fact is that initial deposits are refundable during a contingency period, so this item number five is really not that big of a deal one way or another.  It’s more symbolic than substantive.

6. Waive the Real Estate Commission
By hiring an experienced real estate attorney to handle the buyer-side of the paperwork, the seller can save up to 3% commissions.  So this is the functional equivalent to the seller of a higher purchase price. For example, if the buyer is purchasing a $500,000 home with a real estate agent, then the seller must pay the buyer’s agent the stated commission (usually 3%).  But if the buyer does not have an agent (so no commission is due), then the seller does not have to pay that $15,000.

7. Attach a Loan Preapproval Letter
Sellers do not like having to send emails to buyers asking them to please send over a loan pre-approval letter.  So, Buyers should attach one to the purchase offer.  The preapproval letter should be on bank letterhead, or mortgage-broker letterhead.

Likewise, the buyer can also attach to the purchase offer a bank statement (or letter from a bank representative) to evidence that the buyer has sufficient cash reserves to close escrow.

8. Offer to Pay Closing Costs
Usually the parties split the closing costs depending on the County standard (i.e., seller pays escrow fee, and buyer pays for title insurance).  But closing costs are negotiable between the parties.  As the buyer, you can offer to pay some, or all, of the seller’s costs.

9. Inquire if Seller Has Any Unique Requirements
Sometimes a seller wants to close escrow soon (i.e., 30-days) but then rent-back the property while they purchase a replacement home or otherwise make some kind of transition (i.e., for work purposes).  This is the sort of thing you can only learn from talking with the seller or their agent.  And that’s an important part of the process too – building a nice working relationship with the other party so they know you’re flexible and easy to work with.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — gregoryjglaser@earthlink.net
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
For Sellers: www.GregGlaser.com/FSBO.html
For Buyers: www.GregGlaser.com/buying-a-home-without-a-realtor.html

The Purchase Contract – Part 2

The Purchase Contract – Part 2  (Click Here for Part 1) Buyers and sellers often ask me “what’s customary for a home purchase contract?” or more simply “What do most people do here?” As a real estate attorney with many years of FSBO experience (my primary practice area), this blog post will explain the typical contract terms for parties without a realtor:

  1. The purchase price. Most people choose the ‘market value’ as the purchase price (note that the purchase price does not include closing costs). Market value is considered the amount that a reasonable seller is willing to accept and that a reasonable buyer is willing to pay for the home. Historically and today, reasonableness is measured by ‘comparable sales’. If the home is located in a city or suburban neighborhood (with lots of comparable sales around), then you can get a pretty accurate estimate of market value from Zillow, Redfin, etc. If searching yourself for comparable sales, keep in mind that the most important factors are square footage, the number of bedrooms and bathrooms, and the age of the house. One of my favorite things about realtors is that they do ‘comparative market analysis’ (CMA) reports that help their clients accurately assess a home’s market value.
  1. Initial Deposit. The initial deposit (also called ‘earnest money’) is usually 1% of the purchase price. (In a seller’s market, where there are lots of potential buyers competing, sometimes this number is 3% or higher). Approximately 1-3 days after both parties sign the purchase contract, the buyer gives the initial deposit to the escrow company (by check or electronic funds transfer) for safe-keeping. This money counts toward a buyer’s home purchase (so for example on a $500,000 home purchase, after the buyer makes his initial deposit of $5,000, the remaining sum due at close of escrow is $495,000 at close of escrow). The initial deposit is refundable if the Buyer cancels within a contingency period.
  1. The Loan. Most buyers need a loan to purchase real estate, and most people use a conventional loan (i.e., a loan from Wells Fargo, Bank of America). The typical purchase contract will specify the loan amount and interest rate, so it’s helpful to know these upfront (otherwise you have to write ‘buyer’s choice’). Most buyers get a loan for 80% of the purchase price – for example, on a $500,000 home purchase, a loan for 80% is $400,000, so the Buyer’s lender pays $400,000 at close of escrow and the Buyer pays the remaining $100,000 out-of-pocket at close of escrow.
  1. The Interest Rate. Because the purchase contract requires the maximum interest rate that the Buyer would feel comfortable accepting, most buyers use the interest rate quoted by their bank (i.e. 4.5%) and then add one-half percent or so (i.e. 5%). The contract specifies the ‘maximum rate’ the buyer will accept, so buyer remains free to accept a lower rate (i.e., 2.5%) if Buyer can achieve it.
  1. As-Is Sale. Most sales are as-is, meaning that the buyer purchases the property in its current condition, and the seller will not perform repairs before close of escrow. Having an as-is sale doesn’t change the fact that buyer still has contingencies – so buyer can cancel the as-is sale within a certain amount of time (i.e., after buyer has done property inspections). Sometimes the property inspections reveal property damage, and the Buyer will negotiate with the seller for a contract amendment to give buyer a ‘repairs credit’ (i.e., $10,000) so the Buyer gets a price reduction on the as-is sale. And of course, the seller is still required to provide disclosures on an as-is sale. In this way, disclosures help both parties, because when an issue is disclosed, the buyer learns what he needs to know and the seller stays protected (i.e., the buyer cannot later come back and make a claim against the seller for nondisclosure). Disclosures are win-win!
  1. Contingencies. It is customary for the buyer to have two contingencies: (a) inspection, and (b) loan & appraisal.   The normal time period for these contingencies is 17-21 days. During the contingency periods, the buyer processes his loan application, reviews the preliminary title report from the title/escrow company, and also hires professional contractors (usually one home inspection contractor, and one termite inspection contractor) to prepare inspection reports. During these contingency periods, the buyer is free to cancel the contract and receive a full refund of buyer’s initial deposit. At the end of the contingency period, the buyer must decide whether to cancel the contract (cancellation) or go forward with the contract (release contingencies).
  1. Escrow & Title Company. It is standard to use an escrow & title company for real estate purchases/sales in California. Most people choose one of the big names in their area, such as First American Title, Fidelity National Title, Chicago Title, Old Republic Title, North American Title. Fees vary slightly from office to office – you can usually save a hundred dollars or so by calling ahead to get quotes from different offices.
  1. Close of Escrow Date. Typically, escrow closes within 30-days of both parties signing the purchase agreement. And it is common for the parties to work together if either side needs more time to complete the transaction (i.e., if Buyer needs an extra 10-more days to receive final loan approval (ie., commitment letter) from his lender, then the parties just sign a simple contract amendment allowing more time).
  1. Closing Costs. The parties normally pay closing costs according to the custom of the county where the property is located. Closing costs are miscellaneous expenses paid in escrow (i.e., escrow fee, title insurance, taxes). Nothing gets paid out until close of escrow. The parties are free to split closing costs according to local custom (which is normal), or 50/50, or any allocation desired. Here is a chart for California showing the custom of each county: http://www.firstam.com/assets/title/ca/respa-reform-tools/who-pays-what.pdf. And for a breakdown of average closing costs, please see my article here: https://norcalfsbo.wordpress.com/2013/04/23/closing-costs-an-overview/
  1. Liquidated Damages & Arbitration. It is customary for the parties to initial the sections of the contract relating to ‘liquidated damages’ and ‘arbitration’. In a nutshell, these say that if the buyer cancels the contract after the expiration of a contingency period, then the seller can keep up to 3% of the buyer’s initial deposit. And in the event of any dispute, the parties will first try to mediate, then if that fails, they’ll submit their questions to an arbitrator (usually a retired judge or experienced attorney) to bring a final resolution.
  1. Disclosures. It is customary for the Seller to provide a Real Estate Transfer Disclosure Statement (TDS) and a Seller Property Questionnaire (SPQ). The other standard disclosures are generalized (i.e., Natural Hazard Zone Disclosure) or standardized (i.e., Carbon Monoxide Detector Notice), so they require little or no input from the seller. It is customary for a seller to utilize the assistance of a realtor or an attorney (like myself) to prepare the disclosure package. Some cities have specific disclosure requirements, like RECO in Berkeley or the 3R report in San Francisco, so it’s especially helpful to work with a professional here.
  1. Included Property. It is customary for buyers to request any home appliances (i.e., fridge, stove, washer/dryer) and other personal property (i.e., outdoor fountain, window curtains) that they would like to be included in the sale. If an item of personal property is not specifically listed as included in the sale, then it is excluded. By contrast, ‘fixtures’ (i.e., built-in cabinets, ceiling fans, plumbing) are not personal property, so fixtures are automatically included in the sale unless the parties specify otherwise. The standard contract includes lots of standard examples to help the parties meet their goals here.
  1. Contract Timeline. It is customary for the realtor (or attorney) to prepare a contract timeline after the purchase agreement is signed. The contract timeline is like a checklist that helps the parties track steps and key dates toward close of escrow.
  1. Contract Amendments. It is customary for the parties to use ‘contract amendments’ when new issues arise that require small adjustments to the purchase contract. Some common situations are: (a) buyer needs more time for the loan contingency so he can process his loan, (b) the loan documents are late so the parties need to extend the close of escrow date, (c) the contractor’s inspection report revealed some unanticipated damage, so the buyer would like to receive a certain dollar amount credit at close of escrow so that buyer can handle the repairs himself after close of escrow.
  1. Lease Back. It is not common for the seller to lease the property back from the buyer after close of escrow. However, when it is desirable for the parties to have this arrangement, it is customary for the realtor (or attorney) to prepare a standard lease-back form (or lease form) that specifies (a) the amount of time that seller can lease-back (usually 30-60 days), and (b) the rent and security deposit amount (usually rent is set at the market rate or else the buyer’s mortgage amount). Also, it is customary for buyer to pay real estate taxes and insurance during the rental term, and for seller to pay for all maintenance, utilities, and upkeep.

– Greg Glaser, Attorney at Law San Francisco Bay Area – Northern California (925) 642-6651 gregoryjglaser@earthlink.net Flat Fee Packages Available for Buyers and Sellers Without a Realtor For Sellers: www.GregGlaser.com/FSBO.html For Buyers: www.GregGlaser.com/buying-a-home-without-a-realtor.html

Closing Costs – An Overview

Closing costs are fees paid by the buyer and/or seller from funds that have been deposited in escrow.

Closing costs generally total around 1% to 2% of the home purchase price, and the buyer and seller apportion these costs between them according to the purchase contract — most contracts simply use local custom for the apportionment between buyer and seller.  For example, in Contra Costa County, it is common for the buyer to pay the escrow fees and title insurance costs, whereas the seller pays for the County transfer tax.  Here is a useful website charting these customs in Northern California: NorCal Closing Cost Allocation Chart.

And there are many other closing costs as well.  Here’s a breakdown of the most common closing costs and fees with a rough estimate of average cost in Northern California:

HOME INSPECTION-RELATED CLOSING COSTS

* Home inspection ($300 – $500) – This fee is paid by the buyer who hires and pays for a licensed contractor to inspect the property.  The contractor prepares a written report (often with photos) to chronicle any needed/recommended home repairs, including any safety issues as well.  The home inspection becomes part of the official disclosures on the property.

* Wood Destroying Pest Inspection ($125 – $200) – This report is generally paid for by the buyer or the seller.  The inspector is a licensed contractor who inspects the property and prepares a report chronicling any evidence of termites, dry rot or other wood damage.  Like the home inspection report mentioned above, this termite inspection report also becomes part o the official disclosures for the property.

* Natural Hazards Disclosure Report ($120)–  This is usually purchased by the seller.  It’s a long disclosure document covering miscellaneous facts about the geographical area and local governance, such as natural hazards (i.e., earthquakes), airports, taxes, etc.

* Home Warranty ($300 – $400; optional) – Often a seller, or a buyer’s agent, will pay for a 1-year home warranty to benefit the buyer. This is an insurance policy for the buyer to cover appliances for the first year of home ownership.  Additional items beyond appliances can be added to the policy if desired.

* Survey Fee ($200 – $400; optional) – This fee goes to a survey company to verify property boundaries.  In the average home purchase, this is not required.  It is only required if the buyer or lender require it by contract.

* Home Owners Association Documentation and Transfer Fees ($400 – $600; obviously $0 if no HOA) – Often the Seller will pay for these fees paid directly to the HOA covering the property.  The HOA documentation fees are almost always paid upfront by the seller, whereas the separate HOA transfer fees are paid out of escrow funds at close of escrow.  The HOA documentation includes things like bylaws, CC&Rs, HOA financial statements, minutes and notices.

TITLE AND ESCROW RELATED CLOSING COSTS

* Escrow Fee ($1,000 – $2000, or more specifically calculated around $2.00 per thousand dollars of purchase price plus $250) – This is paid by the buyer or seller (per contract and/or local custom) to the title company or escrow company.

* Lender’s Policy Title Insurance (around $800 for $750,000 home).  The party who pays this fee varies by local custom.  The fee itself is calculated from the purchase price off a rate table at the insurance company.  This is insurance to protect the lender in the event a third party challenges the ownership status/title of the home.

* Owner’s Policy Title Insurance (around $1,900 for $750,000 home).  The party who pays this fee varies by local custom.  The fee itself is calculated from the purchase price off a rate table at the insurance company.  This is an insurance policy protecting the buyer in the event a third party challenges the ownership status/title of the home.

* Courier Fee ($50; not always needed) – This covers the cost of transporting documents to complete the loan transaction as quickly as possible.  The party that necessitates the courier pays for the service.

* Notary Fee ($50 – $100) – This is the cost to have a licensed notary oversee the signing of the closing documents just before close of escrow.  This cost is usually split between the parties, or each party pays for their own notary signing.

* Recording Fees ($20 – $100) – This is the fee charged by the escrow company to record the new deed at the county.  This can be paid by either the buyer or seller.

GOVERNMENT-RELATED CLOSING COSTS

* County Transfer Taxes ($1.10 per $1,000 in sale price) – This is the county tax due whenever title is passing from a seller to a buyer.  This is paid by the buyer or seller (per contract and/or local custom).

* City Transfer Taxes (varies by city; sometimes no tax).  Separate from the county tax, some cities (like Oakland, Berkeley, Hayward, and Alameda for example)  charge their own separate city tax whenever title is passing from a seller to a buyer.  This is paid by the buyer or seller (per contract and/or local custom).  In Berkeley, for example, the city tax is $15 per $1,000 in sales price.

* Property Tax (varies due to closing date).  The buyer is responsible for paying property taxes.  And property taxes are 1% of the purchase price of the property per year, plus any extra sum for local bonds.  With regard to how these are paid as closing costs — because property taxes are prepaid by the homeowner during the year of the sale, the buyer must compensate the seller at close of escrow with a prorated amount covering whatever sum that seller has prepaid the tax for that year.  For example, if close of escrow is on June 1, and Seller already paid property taxes up until July 1, then the buyer must pay a closing cost credit to seller equivalent to one month of property tax.

* Credit Report ($30) – Buyer pays for a credit report from the three main credit reporting agencies (i.e., Experian), which is obtained directly by the Lender.  Buyer cannot supply his own report that he obtains independently.

LOAN-RELATED CLOSING COSTS

* Appraisal Fee ($150 to $450) – This fee is paid by the buyer (or the buyer’s lender) to the appraisal company to confirm the fair market value of the home. This fee will generally vary based on the price of the home.  Occasionally the lender will require this fee be paid upfront by the buyer, rather than at close of escrow.

* Escrow Deposit for Property Taxes, Mortgage, Insurance (varies widely) – Often the buyer is asked to put down two months of property tax and mortgage insurance payments at closing. These prepaid items usually include insurance premiums (for Homeowners Insurance — also called Hazard, or Fire Insurance — and Private Mortgage Insurance) and estimated Real Estate Taxes.  Notably, HUD regulations limit the amount of money a lender may require the borrower to hold in an escrow account.

* Loan Processing Fees (around $900) – Oh, lending fees. This fee is paid by the buyer to his lender to pay the lender for processing the loan.

* Underwriting Fees (around $700) – This fee paid by the buyer goes to the buyer’s lender, covering the cost of researching whether or not to approve the buyer/property for the loan.

* Loan Discount Points (zero to two percent of loan amount)
– This fee is paid by the buyer.  Points are often referred to as ‘prepaid interest’.  The key thing to know is that one point is equal to one percent of the loan amount.  So for example, 1.25 points is equal to 1.25% of the loan amount.

* Pre-Paid Interest (varies depending on loan amount, interest rate and time of month you close on your loan)
– This fee is paid by the buyer to cover the mortgage interest up through the first of the month.

PROFESSIONAL-RELATED FEES

* Real Estate Agent Commissions (3% of purchase price) – The seller pays the commissions of any licensed real estate agents identified in the purchase contract, including the buyer’s agent (if any).  The average real estate commission is 3%.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651
gregoryjglaser@earthlink.net

Flat Fee Packages Available for Buyers and Sellers Without a Realtor
For Sellers: www.GregGlaser.com/FSBO.html
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