List my Home for Sale

Guide to ESCROW, INSPECTIONS & APPRAISALS

List your Home for Sale
When both parties have agreed on an offer and created a contract, it’s time to move on to the next steps. First up: Escrow.

Escrow

The escrow process begins when you accept the purchase and sale agreement and ends when you hand the keys over to the buyer. In between, you’ll pass through several steps.

Escrow ensures that the mortgage lender releases the funds to the seller at approximately the same time that the deed is recorded to reflect new ownership of a property. Escrow is handled by a neutral third party -- in some states, title companies take care of escrow, while in others, real estate attorneys are responsible for the process – who collects money and documents from the buyer and the seller. Escrow fees generally total from 1 to 2 percent of the home’s purchase price. How much each party pays is usually determined by region.

The first step is to open an escrow account and deposit the buyer’s earnest-money check.

The buyer orders a title search and obtains title insurance. The title report will list any easements, claims, encumbrances or liens against the property, also known as clouds or defects, which the seller must then resolve. Once the title is clear, a final title report will be issued.

Usually, the buyer orders an inspection. If the inspection reveals any problems, the buyer may attempt to negotiate for a lower price or list the repairs that must be completed before the deal closes. If you’ve already ordered your own inspection, you shouldn’t expect too many surprises. If you haven’t, and the inspector does find some surprises, be prepared to head back to the bargaining table.

As you resolve any contingencies included in the contract, you and the buyer will sign off using a contingency release form. The buyer must also sign off on the list of disclosures that you provide.

During this time, the lender will order its own appraisal of the property. If the appraisal comes in lower than the purchase price, the lender won’t supply the loan. The buyer will have to make up the difference in cash, order another appraisal, try to get a loan from another lender or convince the lender that the home is indeed worth the purchase price. If none of these tactics works, the deal may fall through.

However, if the appraisal is successful and the loan is funded, the buyer will perform a final walk-through. He'll check to ensure that all repairs have been completed and that any appliances or fixtures have been included as agreed upon in the contract. When the buyer signs off on the walk-through, it’s time to close.

After all the remaining paperwork is complete and the contingencies signed off, the escrow office will record a deed in the buyer’s name. You’ll receive your funds, the buyer will get your keys and escrow is closed.

Inspection

The buyer’s inspection takes place during the escrow process and should be conducted by a professional, independent third party. The inspector will go over the home with a fine-toothed comb and prepare a report that details problems or potential issues. Note that inspections don’t take cosmetic issues into account.

Expect an inspection to take between two and three hours. Inspection standards vary by state, but may cover:

• Pests and termites

• Radon

• Heating and air conditioning systems

• Plumbing

• Electrical

• Water heater

• Roof

• Energy efficiency

• Air quality

While having your own inspection done ahead of time reduces surprises, you can get even further ahead of the game by paying special attention to the most common problems found during inspections. These include:

• Water damage – Moisture in basements or attics, damp crawl spaces, mold and mildew, uneven floors, windows and doors that don’t close properly, water stains along the ceiling and cracks in the foundation are all signs of water damage

• Roof problems – Cupping, splitting or curling asphalt or wood shingles and cracking tile shingles indicate roof damage

• Electric issues – Exposed wiring and overuse of extension cords may lead to faulty wiring

• Plumbing problems – Leaky pipes, slow drains, discolored water from the faucet, a constant sound of rushing water, and low water pressure indicate faulty or outdated plumbing

If you notice any of these issues, invest in repairs before you list your home for sale. After all, it’s likely to be cheaper to fix it ahead of time on your own terms than be forced to choose between a costly repair and losing a sale.

Appraisal

Appraisals provide a way to assess a home’s market value. Appraisers, who must be licensed by the state, act as independent and neutral third parties. Their job is to evaluate a property’s value based on certain criteria, such as the size, condition, age and features of the home, as well as sales prices of comparable homes in the area. Appraisers provide a written report that details their findings.

When appraising residential properties, appraisers generally take two approaches:

• Cost approach – An estimate of what it would cost to replace or reproduce improvements, plus land value, minus physical deterioration

• Comparison approach – The selling prices of comparable homes in the area, adjusted for different features, sizes, age, conditions, features and layouts

Lenders use appraisals to get an objective evaluation of a home’s market value. Lenders won’t make loans that are more than the home’s value, as the home itself serves as security for the loan.

The buyer’s lender will order an appraisal during the escrow process.

Given an appraisal’s limited relevance – factors such as rapidly changing markets and interest rates can render an appraisal obsolete within weeks or months – it may not be worth the money to order your own. However, a positive appraisal can be an effective marketing tool during the negotiation. Each situation is different, so evaluate your own needs before deciding whether or not to order a pre-listing appraisal.







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