Step 9: WHAT TO DO AFTER YOUR OFFER IS ACCEPTED
Once you have a signed purchase contract, time is of the essence. Be proactive and satisfy all contingencies and actions agreed upon before the escrow close date. Aside from working with your lender, there are a few steps you will need to take before the offer is accepted.
Title Commitment and Title Insurance
Before the house is purchased, the escrow company will run a title search and provide a preliminary title report. The title search determines if there are pre-existing legal claims to the property. If a title problem occurs after the house has been purchased, title insurance protects the buyer from any financial loss or damage as a result of any claims against the property, defects in the title to the property, and other discrepancies that may affect a buyer’s overall experience of the property.
There are two types of title insurance included:
- Lender’s coverage — protects the lender’s interest in the property, and will defend that interest should any claims arise.
- Owner’s coverage — protects a buyer’s interest in the property for as long as you own the property.
Examples of situations where title insurance would offer coverage:
- Someone claims to have an easement.
- Someone claims to be the true owner of the property.
- A bank tries to foreclose on the home because a mortgage that was recorded on the property was never paid by a previous owner.
According to the California Purchase Contract, once the title commitment has been received, you have five days to provide notice to the seller of any items you disapprove of.
Home Inspection
Typically, purchase offers using the standard California Residential Real Estate Purchase Contract are contingent upon a home inspection. Buyers will typically be given a 10-day period when the contract is first accepted to complete the inspection, along with other inquiries that are related to the suitability of the house.
An inspection is a great opportunity to expose otherwise unexposed issues. Buyers are given detailed information about the overall quality of the house. An inspector will perform a thorough examination to make sure there are no structural, mechanical (ex/ air conditioning unit), or other issues. Anything that needs to be repaired or replaced will be identified. If there are serious unaddressed issues, be prepared to negotiate for repairs, a reduced price, or be ready to walk away from the deal.
A thorough home inspection will take about three hours. Most will give buyers an action list that needs to be taken care of before move in. Cost depends on type, size and location of the house. Price usually costs between $200 and $600.
Inspections will include the following:
- Plumbing
- Electrical systems
- Heating and cooling systems
- Structural elements
- Foundation
- Siding
- Doors and windows
- Roof
- Insulation
Most homes will have a few minor issues. Older homes might have more. Some might have more problems than they’re worth. Damage to a house could you thousand if you’re unaware. Disclosure for most problems are mandatory, but some sellers are unaware that certain problems exist.
You may have to spend money upfront for a home inspection, but you could save yourself a massive headache down the line.
Here are a few negotiate tips before you sign the final contracts:
- Ask for repairs – While buyers wont see a reduction from the final price of the home, this is one of the best ways to save money.
- Ask for a price reduction – If the seller wont spend money on repairs buyers may have requested, they may agree to drop the final price.
Homeowners Insurance
In most cases, you will need to get a homeowner’s insurance quote during the inspection period and have it in place when you close on the home.
Homeowners insurance is a package policy which includes:
- Personal liability insurance — This protects buyers if they’re sued by someone injured on their property
- Property coverage — This protects buyers against fire, theft and specific weather-related hazards.
In California, a lender is prohibited from requiring coverage above the “replacement value” of the property (this includes garage, outer buildings, etc.). Your insurance agent will help you determine what coverage is needed.
Common Exclusions
All homeowner’s policies include a list of exclusions (ex/ water damager caused by flooding). Read and familiarize yourself with which exclusions are itemized on your policy.
A lender will typically request flood certification as part of the loan process.
Aside from flooding, most homeowner’s policies also do not provide coverage for:
- Normal wear and tear of personal property.
- Loss of animals, birds or fish.
- Damage to automobiles.
- Water damage due to sewer or drain back-ups – These losses are normally not covered by a homeowner’s or flood insurance policy. This coverage may be available separately as an additional endorsement (an amendment to a policy), but may not be offered when buying homeowner’s insurance unless you ask for it.
- Damages resulting from war, nuclear hazard, neglect, earth movement, or power failure.
- Additional cost of repairs due to changes in building codes or local laws enacted since the home was built. Separate coverage may be available as an added endorsement.
- Watercraft – If you own a boat, you should ask your agent or insurer if it is covered. Some policies will cover small motorboats and sailboats, but not larger ones.
Termite Inspection
Termite inspections are a separate type of inspection not covered under a standard home inspection. It will give you an idea of any structural damage that could have been caused by termites and / or other pests. Currently, only VA loans in California require an inspection. If a buyer would like to have one performed, this is part of the negotiable part of the contract.
The inspection should only take between 30 and 45 minutes. The inspector will check the basement, attic, and foundation of the home. Not only for termites, but ants or fungus that may destroy the wood.
Survey
Surveys are used to define the parameters of a property’s limits. They are not required, but if you aren’t sure if you should have one done, seek advice from your real estate agent. When the purchase contract is complete, specify whether the survey will be paid for by you or the seller.
When a survey is effectuated, an assessment of property lines will be used to determine the exact amount of land. It will also show any improvements, variances, easements or encroachments to the property.
The land surveyor will study legal documents such as deeds and land documents recorded in the local county recorder’s office. And they will visit the property to perform measurements and verify the accuracy of any existing land documentation.
Septic System Certification
If the property has a septic system, California law states that septic tank certification needs to be completed before escrow of all property sales.
The seller of the property is responsible for obtaining an inspection within six months before the property is sold. The report will act as a full disclosure for the septic system. It does not guarantee compliance with local building codes, and is not a guarantee that the system will work in the future. It simply discloses condition of the septic tank at the time of the inspection.
Before closing date of the property, the seller will provide you with a completed report and any other documents that relate to the permitting, operation, or maintenance of the septic system.
Once the house is purchased, buyers have 15 days to submit a completed Notice of Transfer form with the required fee to the California Department of Environmental Quality or appropriate county authority.
On-Site Well Testing or Shared Well Agreement
If the home has an on-site well, the seller is required to provide you with a disclosure statement regarding the functionality of the well and any records they have within 5 days of contract acceptance.
Buyers can have an inspection performed that certifies the well’s gallons per minute pumping rate and recharge rate.
If the property has a shared well agreement, buyers will need to determine if it meets the requirements of the loan program selected. For example, here are the requirements to qualify for an FHA loan:
- Serve existing properties which cannot feasibly be connected to an acceptable public or community water supply system.
- Serve no more than four living units or properties.
- Be capable of providing a continuing supply of water to involved dwelling units so that each existing property simultaneously will be assured at least three gallons per minute (five gallons per minute for proposed construction) over a continuous four-hour period.
- Provide safe and potable water.
- Have a valve on each dwelling service line as it leaves the well so that water may be shut off to each served dwelling without interrupting service to other properties.
- Be directly connected to the pumping energy source (not through a dwelling) and energy used for pumping must be separately metered.
- Be covered by an acceptable well-sharing agreement. Such an agreement must:
- Be binding upon signatory parties and their successors in title;
- Be recorded in local Deed Records;
- When executed and recorded, reflect joinder by any mortgages holding a mortgage on any property connected to the shared well.
- In addition, the agreement must contain essential provisions such as well water sampling and testing, continuity of water service to “supplied” parties, prohibition of well water usage by any party for other than bona fide domestic purposes, the establishing of easements for all elements of the system, establish the right of any party to act to correct an emergency situation, specify required cost sharing and many other critical stipulations.
Swimming Pool Barrier Regulations
If the home has a swimming pool, you need to find out if there are any applicable state, county, and municipal swimming pool barrier regulations and agree to comply with and pay all compliance costs prior to escrow close date.
Other Items
The California Association of Realtors has created this Buyer Inforgraphic that covers common issues that you should investigate if they are applicable to the home you are buying.
Legal Disclaimer
This home buyer series is intended to provide general information regarding the process of how to buy a house in California. It is not intended to provide buyers with legal, accounting or financial advice. You are advised to seek the services of a skilled professional this those fields.
Additionally, this home buyer series does not set forth all qualification criteria for any of the loans described herein; all interested persons must successfully meet qualification criteria and complete the application process to obtain such loans.