This information is designed as a brief introduction to the real estate transaction process in general. Traditions and practices vary from one area to another, so please be advised to check with a professional for the standards for your area. We strongly advise consumers to seek the counsel of a real estate professional or an attorney when purchasing or selling real property.

Table of Contents

1. The Real Estate Transaction Process...?
2. Working With Professionals...?
3. The Agreement...?
4. The Escrow Account...?
5. The Title Search and Policy...?
6. Securing Funds...?
7. Inspecting the Property...?
8. Disclosing Everything you Know...?
9. The Closing and Transfer of Title...?

The Real Estate Transaction Process...?

Since every residential real estate transaction begins with the "engagement" of the buyer and the seller, your first goal as a seller is obviously to find the right buyer for your property. Conversely, as a buyer, you will be driven to find the best possible property for your needs, at the best possible terms. Both of these goals are attainable through the World Wide Web. wewill offer a very short view of the major steps involved in a typical (if there is such a thing) real estate transaction. we do not offer legal advice. This mini-view of the real estate transaction is presented for discussion purposes only and is in no way deemed to be definitive. You are strongly urged to seek the counsel of a real estate attorney or a licensed real estate professional before you enter into any agreement for purposes of transferring real property.

The Agreement...?

Once the buyer and the seller have decided to become "engaged", there must be an agreement between the parties that specifically states the terms and conditions of that agreement. This is usually written in the form of a "Real Estate Purchase Contract and Receipt for Deposit." The terminology and specific clauses in this agreement are of paramount importance. This form is a legally binding contract that obligates the seller to sell, and the buyer to purchase under specific conditions. You should not take this agreement lightly, since it is the very "heart"of the transaction and will govern all activities and responsibilities of the transaction. Do not attempt to create this document from scratch, unless you are an attorney who specializes in real estate. You should begin with the appropriate preprinted contract that is in use in your part of the country. westrongly recommend you to consider employing a real estate professional or a real estate attorney for this step. You are contractually obligating yourself in a transaction that might be one of the most important and costly events of your life. Incorrect verbiage or missing documentation can cost you literally hundreds of thousands of dollars.

The Escrow Account...?

Once the contract has been created and executed by all parties, a good faith deposit is usually put aside to "seal the deal." This deposit can be given directly to the seller, however it is usually placed in an escrow account and held for disbursement on the successful close of the transaction. Seller and buyer typically agree on who will be manager of these funds held in escrow, often called the escrow holder. In many parts of the country, title insurance companies perform this escrow service, for a fee. In other parts of the country, a bank will perform escrow services. Check the procedure in your area to determine the best holder of funds. It will be the further responsibility of the escrow holder to collect all other funds of the transaction and to disburse all funds when all terms and conditions of the agreement have been completed.

The Title Search and Policy...?

Some time after the opening of the escrow account, and well in advance of the closing, a search of all existing records must be performed by a qualified party to determine the status of the property's title. This is commonly called the title search. This search is usually performed by a Title Insurance company that has direct access to all relevant files and county deed information. They will search for the exact ownership as recorded with the appropriate government agency, typically the Office of the County Recorder. The Title company will research any and all "clouds" on the title. Such "clouds" will be all existing loans and other liens, legal actions pending against the property title and any restrictions of ownership.

Once all searches are completed and all "clouds" are eliminated, the Title Company will usually issue a Policy of Title Insurance. This policy will state that all known restrictions have been cleared and title is clear as of that moment in time. Many of these policies will further protect buyer and seller against any undiscovered liens and restrictions. This type of policy is required in most areas of the country before title can pass to the buyer.

Securing Funds...?

Immediately after securing agreement between buyer and seller (the contract) the buyer must take steps to ensure that the funds needed to close the transaction will be available. Unless the buyer has the cash, or the seller will carry the loan, the buyer will need to apply for a loan from the desired lender. This type of loan for real property is usually called the mortgage. The process requires the buyer to qualify on a financial and credit worthiness basis, and the property to qualify on a value basis.

The buyer will fill out the necessary loan applications, pay the fees for the credit application and call for an appraisal of the property. This appraisal is performed by a qualified (often licensed) appraisal company, who will measure and photograph the property in anticipation of drawing up the standard appraisal report.

Appraisals will use sold properties for this comparison because this is the best way to determine actual value. The estimated value of a property is determined based on what the public will probably pay for that property. This is best determined by looking at what people have actually paid for similar properties. Assuming that the property is worth the price, and the buyer qualifies for the loan, the loan will be approved and the escrow company will be told how to get funding by the lender.

Inspecting the Property...?

Sometimes, the buyer, in a desire to make sure that the property is worth the investment and won't cost an undue amount to maintain, will call for certain types of inspections by qualified third party inspectors. More often than not, the lender, in a desire to protect their investment, will require certain inspections prior to funding. Usually, the minimum inspection
required by lenders is the Structural Pest Control Inspection, commonly referred to as the Termite inspection.

There is actually no limit to the number and type of inspections that can be called for in a real estate purchase agreement. Common inspections will include roof, pool, soil, sewage and electrical inspections. Certain parts of the country have specific concerns and specific inspections are common to those areas. In California, one common inspection would be the
Geological Inspection, often called the Earthquake Inspection. In other parts, it is common to inspect the building for excessive levels of radon gas, usually called the Radon Inspection. If the property is in an area that is subject to flooding, a Flood Zone inspection and report will be called for.

It is very important that both buyer and seller be fully aware of the inspections that are common to their area. At the risk of redundancy, weadvise you to seek the opinion of a professional who is familiar with the area and it's real estate practice.

Disclosing Everything you Know...?

As the seller of real property, you are required by law to disclose any and all known defects and issues that might have any effect on the current or future value or enjoyment of real property. This requirement to disclose is not in the least bit vague. Every state has enacted a minimum set of disclosure requirements that tell you exactly what items are to be disclosed and the correct method of that disclosure. Al disclosures must be in writing and acknowledged by all buyers, if you wish to prove the existence of that disclosure. In short, you have not disclosed anything by merely telling the buyer in person. The buyer could always deny the fact that they were told anything.

You, as seller, will need to research the existing disclosure requirements in your state so that you are aware of every required disclosure and you know where to get the appropriate disclosure forms. Often the library will have a business section that will contain the information you need. However you get the information, make sure that you absolutely refuse to withhold any material fact from the buyer. Consumer awareness is at an all time high. Buyers are well aware of their rights of disclosure. In the event they move into the house and find an item that should have been disclosed, but wasn't, you can expect to be paying for this mistake dearly. Caveat Emptor has been replaced by Seller Disclose!

The Closing and Transfer of Title...?

When all other steps have been completed, and after instruction by both buyer and seller, the escrow holder will prepare all final documents for subsequent signing. This sign-off phase is the final step requiring participation by the parties. Previous to the signing, often the buyer will request and be granted a final "walk-through" to ensure that the property and all buildings are in the same condition that they were in when the agreement was originally executed, and that all items required by the agreement have been satisfactorily performed.

Once the final instructions and all other documentation are signed, and after all funds are in the hands of the escrow holder, the title to the property will be transferred to the buyer. Some time after deed recording, and after all final charges to the escrow are in and paid, any money left in the escrow account will be distributed to the parties, according to the final instructions. The deal is assumed to be done.

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