Frequently Asked Questions

If the buyer hasn’t yet removed all contingencies, the buyer is usually entitled to get their entire deposit back. Once all contingencies are removed, the deposit goes to the seller. Typically, sellers consider a large deposit as an indication of the buyer’s sincerity and commitment. Though, the seller usually can’t keep more than 3% of the purchase price no matter how large the deposit.

The purchase agreement will specify both the closing date and possession date. These can be amended, but only if both parties agree. If you’re planning on including a rent-back for the seller to remain in possession for a period of time after escrow closes, keep in mind that with owner-occupied financing, the buyer usually must occupy the house within 60 days.

An offer is considered a bona fide pledge by the buyer to purchase the home as long as all conditions and contingencies fall into place. So while most contracts allow a period of time wherein the buyer can back out, it’s very unethical to tie up more than one property at a time unless you truly plan to buy both homes. By taking their home off the market and potentially missing out on other offers, the seller is relying on your commitment to purchase.

Sellers are obligated to disclose all material facts, which means pretty much everything you know about the house. A good rule of thumb is to ask yourself “what would I want to know if I was buying this house?” When in doubt, disclose, even if it seems trivial.

Any new problem or finding must be disclosed to the buyer. Doing so automatically opens a new 3-day window for the buyer to back out. But if something is going to be an issue for the buyer, you can bet that it’ll be a bigger issue if you fail to disclose it and the buyer discovers the problem after they move in.

The contract specifies when contingencies must be removed. In our standard purchase agreement, unless otherwise amended, the default deadlines are 17 days for disclosures, inspections, appraisal and title contingencies and 21 days for the loan contingency.

There is no standardized pre-approval letter format, so they vary greatly from lender to lender. The term pre-approval is often subject to interpretation, too. A true pre-approval means that the lender has run the buyer’s credit, obtained verifications of employment, reviewed current bank and employment statements and verified that the buyer meets the loan program’s debt-to-income ratio and other guidelines.

Many lenders and many agents prefer to submit a pre-approval letter than matches the amount you’re offering rather than letting the seller know just how high you can really go. We’ve always taken a different approach and advise our buyers to submit a pre-approval letter that shows the maximum amount they qualify for. Just because a buyer can afford to go higher doesn’t mean they will. Moreover, if your lender letter matches just what you offered, the seller might assume you can’t go any higher and accept another offer. A seller who sees that you can afford more will also be comforted in knowing that you’re not likely to pull out midway through the transaction if interest rates go up slightly.

In recent years, wire fraud has become a big concern. While we haven’t seen it happen here locally, we’ve heard about instances where a buyer receives what looks like a legitimate email from their title company providing updated wiring instructions which turns out to be a scam, wherein the buyer wires hundreds of thousand of dollars to a fraudulent offshore bank. Only wire your funds to the title company if you are 100% positive that you have the correct wiring information. Either get a printed copy of the wiring instructions directly from your escrow officer or get the title company’s phone number from your agent and call your escrow officer to confirm that the wiring instructions you have in front of you are accurate.

The lender orders the appraisal from a third party Appraisal Management Company, which selects the appraiser and receives & reviews the appraisal before releasing it to the lender. Prior to 2010, the loan officer would select the appraiser but that all changed in the aftermath of the financial crisis of 2008. Today, the lender doesn’t find out the identity of the appraiser until they receive the actual appraisal itself.

Appraisals are by their very nature fairly subjective, so while the borrower has the right to contest a low appraisal, unless you have compelling evidence or can prove that the appraiser wasn’t competent or familiar with the area it’s probably going to be a fruitless exercise. If you’re using conventional financing, you could always switch lenders, which would necessitate a fresh appraisal with a different appraiser. But that could jeopardize your ability to close escrow on time and would probably ruffle the feathers of your current lender, too. FHA appraisals stay with the property for 120 days, so even if you were to switch lenders on an FHA loan, you’d have to use the existing appraisal. A VA appraisal, meanwhile stays with the property for six months.

Unless the appraiser specifies any repair requirements (unlikely on a conventional loan), everything is negotiable between the buyer and seller. Typically, sellers will agree to correct health, safety, mechanical or structural problems, but often the seller’s willingness to do so depends on how the original offer was negotiated. If the seller agreed to a lower price or if the buyer agreed to purchase it as-is, repairs are unlikely. If the buyer came in at or above the asking price, there’s a much greater likelihood that the seller will agree to certain repairs. On an FHA loan, though, any items the appraiser cites as a condition will need to be corrected prior to close of escrow. And on a VA loan, a pest certification is required, so anything that shows up on the pest (termite) report must be corrected.

Home warranties are beneficial for both the buyer and seller, for if something breaks shortly after escrow closes and it’s a covered item, there’s no finger pointing by a buyer insisting that the seller must have known about it. A home warranty covers most of the home’s appliances, mechanical, plumbing, electrical and ventilation systems plus an array of other items. The policy covers the buyer for one full year after escrow closes and requires payment of a small deductible for each service call. It doesn’t cover every component nor does it cover obvious pre-existing conditions. And they can be renewed at the end of the year.

Home warranty companies are very wary of claims that are submitted shortly after escrow closes, particularly if they’re for an item that should have been evaluated by a home inspector. If you call in a claim for such an item, the warranty company will likely ask to see your home inspection report and if the item in question was noted on the report, it’s unlikely that it will be covered. But if the item was working fine at the time of the inspection and it’s just a coincidence that it occured so close to the close of escrow, it should be covered.

Unless it’s specified otherwise in the contract, everything that’s considered real property must stay at close of escrow and anything that’s considered personal property can be taken by the seller. Real Property is deemed to be anything that’s permanently attached to the building or land or which is built-in. Items that can be easily removed simply by taking them off a hook (ie. pictures) or unplugged (ie. a washer/dryer or refrigerator) are considered Personal Property. But if the accepted offer includes certain items of personal property, they must stay. Similarly, an offer that excludes certain pieces of real property (eg. a light fixture that’s a family heirloom or window coverings that match a piece of furniture or bedding) entitles the seller to remove any such items.

Property taxes are paid twice a year, in November and February (though with the grace period, the deadline allows you to pay up until Dec. 10 and April 10 respectively). The November payment covers the period from July 1-Dec. 31 and the February payment covers Jan.1-June 30.

Since Prop. 13 prevents a homeowner’s property taxes from going up more than 2% a year, often when a house sells, the new owner’s taxes are substantially higher than what the seller was paying. The assessed value for the upcoming year’s tax roll is based on what the home was assessed at on Jan. 1. So when a home sells after Jan. 1, the county calculates the tax based on the sales price from the date escrow closes until the property is reassessed the following Jan. 1 and issues a supplemental bill. If your lender is paying your taxes through an impound account, be aware that supplemental bills do not go to the lender. So if you ignore a supplemental bill by assuming your lender will automatically pay it, you may find yourself past due, with penalties, by the time you discover it.

Generally, most homes built after the early-1990s will have a special assessment district with higher property taxes than older homes in the same community (though that also applies to a few sudivisions that were built in the ’80s). The Mello-Roos Act (named after two state legislators who authored the bill) was enacted in 1982 and allowed communities to collect taxes to cover the costs of infrastructure and community services brought on by new home developments. Though it wasn’t until the 1990’s that we began to see these implemented on a wide-scale basis. If you’re buying in a community built in the last 30 years, it’s best to find out if the home you’re considering has a special assessment. For if it does, your property taxes could be higher. Homes in the newer part of Green Valley in Fairfield and the Hiddenbrooke community in Vallejo, in particular, have extremely high special assessments and can often push a buyer’s monthly payment well beyond what the lender calculated.

Back in 1978, California voters passed Prop. 13, which decreed that unless you sell or transfer your property, your property taxes can only go up 2% a year, no matter how much the real value of the home increases. As a result, homeowners who bought many years ago can have property tax bills that are half or a third of a neighbor who purchased recently. The property is reassessed when the property sells or transfers (though several types of transfers, such as parent to child, are exempt).

Interest rates often change daily and during times of economic volatility they can even change several times during the same day. With most lenders, your interest rate isn’t cast in stone until you lock it. So if you’re waiting for rates to drop lower before locking and the opposite happens, you could end up with a higher rate. Most loan officers will advise their borrowers on whether it makes sense to lock right away or “float” for a period of time, but ultimately the decision is yours. Often it comes down to whether or not you like to gamble.

If you’re selling your principal residence, in most cases, you’ll receive your entire proceeds at close of escrow. But if you’re selling land, commercial or residential investment property and can’t claim an exemption, the title company is obligated to withhold 3-⅓% of the sales price from your proceeds and send it onto the State Franchise Tax Board. It essentially becomes an interest-free loan to the state, which holds onto your money until you file your income tax return for that tax year. If you’re a Foreign investor, you may also be subject to an additional 10% IRS withholding tax, too. Keep in mind that both of these are based not on a percentage of your proceeds, but a percentage of the sales price. So if you have little equity in the property and either of these withholding requirements apply, you could find yourself writing out a check in order to close escrow.

When you’re taking out a loan, one of your closing costs is Pre-Paid Interest. That’s the amount of interest from the date your loan funds until the end of that month. So if the interest on your loan comes to $2,000/mo. and you close on the 1st, the title company will collect the full $2,000, as part of your closing costs, If you lose on the last day of the month, it may only need to collect $65. To avoid surprises, check to see if your lender has estimated a worst-case (beginning of the month) a mid-month or best-case (end-of-the month) scenario.

If your loan includes an impound account whereby the lender is paying your property taxes on your behalf, the lender will need to make sure there’s enough money in that impound account by the time property taxes are due. Since taxes are due in November and February, the closer you are to those months the more the lender will need to collect up-front at close of escrow to ensure that your impound account is adequately funded to make those tax payments. If you close in late summer or early fall, the lender could include 6-8 months of property taxes in with your closing costs whereas if you close in April, the lender will have plenty of time for your impound account to grow before the next tax payment is due.

Yes and no. Unlike rent, which is paid up front for the month that’s about to occur, mortgages are paid in arrears, which means that each house payment covers interest for the month that just passed. When you close escrow, you’re charged pre-paid interest from the date escrow closed until the end of that month, so your first house payment isn’t due until after the following month. Thus, even though you don’t have a house payment for the month after you close, you really made that month’s house payment as part of your closing costs.

Real estate agents are prohibited from making any characterizations or statements about a home’s desirability or to share a neighborhood’s crime statistics, ethnicity and the like. Agents can tell you what they know about real estate but are barred from making any other judgmental statements. The rationale is that if agents were to repeatedly tell buyers to avoid certain areas, they would not only be guilty of discrimination but they’d also prevent those areas from ever improving. So if you ask your agent to show you only the “good areas”, don’t be surprised when the agent says they’re not allowed to make any such determinations.

Just as agents are unable to make any characterizations about a neighborhood’s desirability, an agent should direct prospective buyers to contact the school district to determine which school(s) their children may attend. Districts occasionally re-draw school boundaries, so the district is always the best resource for up to date information. Moreover a school might be at capacity in some grade levels but not in others. In other words, just because you’re buying a home two blocks from a top-rated school, don’t automatically assume there will be a place there for your child.

CC&Rs stand for Convenants, Conditions & Restrictions and they represent the builder’s vision for that subdivision. They’ll indicate that the subdivision has been designed for residential use and that front yards shall be landscaped. Or that livestock or wild animals are now allowed. They may specify a minimum size or a maximum amount of lot coverage. Now, when there’s a a homeowner’s association, such as with a condominium or planned unit development, the CC&Rs are often much more detailed and specific.

If you drive around a neighborhood you’re likely to see an assortment of homes that aren’t in compliance with what the CC&Rs prescribe. However, most cities generally will not enforce a provision in the CC&Rs unless it’s also in violation of a city ordinance or zoning law. Otherwise, cities will usually consider it a civil issue between neighbors, which often means that the only recourse is to take your neighbor to court. Most homeowners don’t want to go such an extent, particularly if the outcome is going to make living near each other very uncomfortable in the future. However, with condominiums or planned unit developments, it’s a different story, as the homeowner’s association has the power to enforce compliance and assess fines or require other remedies for those who don’t comply.

CC&Rs ‘run with the land’ forever unless there is an expiration date. However, they can be amended, which is often a good idea when certain provisions no longer apply. Amending the CC&Rs requires legal expertise and money to do so.

CC&Rs that were recorded prior to the enactment of fair housing laws in the 1960s often contain restrictions barring people of a certain race, ethnicity or religion from residing in that neighborhood. They can also contain age, sex, marital/familial status or income restrictions as well as restrictions against people with certain disabilities. All of these are of course illegal today but they still remain part of the recorded CC&R documents. Thankfully the California legislature passed a law several years ago that allows such discriminatory provisions to be permanently removed from any such CC&Rs. However, it’s not an automatic process; a citizen must take action to have them stricken from the official records. Today, all CC&Rs contain a cover page referencing California civil codes 12955(p) and 12956.2, which provide the mechanism for having those illegal provisions permanently removed.