House purchase question: about to make an offer, and nervous

[Safire]

1. In a real estate transaction, who picks the title and escrow companies? If it depends on the area, how do we find out who "traditionally" picks the title and escrow companies? Can title company and escrow company be the same company?

2. If seller picked, will title and escrow companies truly be neutral and unbiased, especially escrow company if - for whatever reason - the purchase does not go through and return our earnest money?

3. What % of the purchase price is a "normal" / reasonable earnest money deposit?

4. What are the things that can go wrong in this transaction and what should we look out for?

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company. Is there a reason why she wouldn't?

We're older but never owned a home before, having been life-long renters. This is the largest purchase of our lives and the anxiety is nerve wracking for me. We cannot afford to mess this up either through ignorance or through misunderstanding the rules. The home is in a good area and we like it. But we are BOTH nervous because of the $$$$$$$$$$$$$ involved (including the earnest money deposit) and can't afford to lose money after we've waited for decades to become first time home owners.

TIA for any guidance you can give us. Much appreciated.

 

[Sunset]

I always only give $2K earnest deposit.
Yes the real estate agent will complain, whine, claim the buyer won't take me seriously, etc.... etc...

The real reason they want a large earnest deposit, is they keep it if you screw up, or back out, or some other problem comes up and sale fails.

I just tell them that's all the deposit with the offer I'm going to give, and I've already proven I can afford the place. As in my experience they want proof you can buy a place before doing lots of work.

 

[Jerry1]

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company.

The title company is insuring that the title is good and clear. Insuring, as in, they have a financial stake in making sure that the title is indeed clear. I'd not worry about a title company as long as your real estate person says they've worked with them before and never had a problem.

As for the escrow company, they're typically tied to the mortgage company. I wouldn't worry about it. Having said that and given that this is your first house, you may not know that you do not necessarily have to have an escrow. If you're putting more than 20% down on the house, you can waive escrow and just pay your taxes and insurance when they come due. They may push back some but don't assume that you have to have an escrow. Start with "I'll handle my own bills" and see if you can get that to happen.

 

[ut2sua]

1. In a real estate transaction, who picks the title and escrow companies? If it depends on the area, how do we find out who "traditionally" picks the title and escrow companies? Can title company and escrow company be the same company?

2. If seller picked, will title and escrow companies truly be neutral and unbiased, especially escrow company if - for whatever reason - the purchase does not go through and return our earnest money?

3. What % of the purchase price is a "normal" / reasonable earnest money deposit?

4. What are the things that can go wrong in this transaction and what should we look out for?

Generally, in the US, the title company is your friend (other than the fact they charge you some $). The title company ensures the property is legally OK to be transferred to the buyer without some banks/persons having a claim on the property. Some other countries may not have them, and that could result in some major pain for buyers. As long as the title company is well known, you should be OK. I actually forgot who got to pick the title company, but I just recall not having too much concern regarding that (may vary by location also).
Where I live, the earnest $ is part of the buyer's offer. In a seller market, buyers sometimes increase the amount to make the offer more attractive to the seller. In a buyer market, the amount is probably less important.
Where I live, the last time I sold a house, my selling agent told me it was almost impossible to get the earnest $ unless the buyers just have a change of heart and decided to back out with no reason. Again, this may vary by location.
Regarding risks, other than making sure the house is in relative good shape (it is a good idea to pay for a home inspection and read the report. My last inspector let me came along when they inspected the house). To be reasonable, no house will be in perfect shape (even newly built houses), so you need to accept some minor wear and tear, but try to catch the major ones (roof leak, water damage, structural defect/damage, toilet won't flush down etc.) A good inspector will identify these issues and explain them to you.
The remaining risk would be what kind of loan you will get. You will need to understand the loan terms and be comfortable with them.
Best of luck

 

[freedomatlast]

Take the realtor's recommendation on the title company since they generally have a lot of experience and know which ones are easy to work with. They all charge about the same.

As far as the earnest money is concerned, just make sure you get an inspection of the property with the pickiest inspector available. There will almost certainly be some issues that come up in the inspection report and you have the right to cancel the deal and get your earnest money back for any one of the items that's reported in the inspection, and you don't need to give the seller the opportunity to fix those items or reduce the price of the property, if you don't want to.

So, if you change your mind about going through with the sale for any reason, you can use the items in the inspection report as an excuse to get out of the deal and get your earnest money back.

 

[FLSUnFIRE]

I've used whatever title company the agent/broker suggested as they are the one's working the deal -typically chosen by the seller here. When selling, I have specified the same title company that guaranteed the title when I bought as they offered a discount (less research for them as they already researched up to the current owner). If no discount, I would have used whomever my agent recommended.

 

[Buckeye]

1. In a real estate transaction, who picks the title and escrow companies? If it depends on the area, how do we find out who "traditionally" picks the title and escrow companies? Can title company and escrow company be the same company?

2. If seller picked, will title and escrow companies truly be neutral and unbiased, especially escrow company if - for whatever reason - the purchase does not go through and return our earnest money?

3. What % of the purchase price is a "normal" / reasonable earnest money deposit?

4. What are the things that can go wrong in this transaction and what should we look out for?

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company. Is there a reason why she wouldn't?

We're older but never owned a home before, having been life-long renters. This is the largest purchase of our lives and the anxiety is nerve wracking for me. We cannot afford to mess this up either through ignorance or through misunderstanding the rules. The home is in a good area and we like it. But we are BOTH nervous because of the $$$$$$$$$$$$$ involved (including the earnest money deposit) and can't afford to lose money after we've waited for decades to become first time home owners.

TIA for any guidance you can give us. Much appreciated.

1. Importance level is low. I think the seller usually picks it. The cost of this service is peanuts compared to what you'll pay in interest so make sure you get a good rate.

2. We've never backed out of a deal but I think the escrow company has no skin in the game and does what the agent tells them to do with the funds. I'm sure there are laws about what they can and can't do but we've never tested them.

3. I think the most we've ever put down on buying 6 or 7 homes (lost count) is about $2,500. I don't remember a deal ever being threatened by how much earnest money was put down. It's all about the purchase price from my experience. We've never done a percentage, just an amount.

4. +1,000 on getting the pickiest and best home inspector. Serious hidden issues can cost you a lot of money in the future and devalue your investment. Also, getting a loan broker/lender who is fast, efficient, and accurate (with excellent rates) is critical. There will be no deal if there is no money (approved mortgage)! Also, your mortgage rate the largest overall cost factor for the long term. Getting a good rate is very important.

5. Title and escrow company chosen is of low importance IMO. I don't know how you picked your lender but this is really one of your most important decisions (along with the home inspector). Over the years, I finally found an outstanding loan broker who gets the best rates and works very quickly and accurately. To me, other than finding a solid property, this is one of the most important decisions.

I hope you have an experienced and well-connected real estate agent. They have a stable of people they have used over the years who they know are good at what they do (like home inspectors for buyers and maintenance people for sellers when things on the inspection punch list need to be fixed).

And, yes, it is very nerve wracking. Hopefully, you have a very experienced and competent agent leading you through the process. Keep us posted on your progress and keep asking questions. Good luck!

 

[retire48in2018]

1. In a real estate transaction, who picks the title and escrow companies? If it depends on the area, how do we find out who "traditionally" picks the title and escrow companies? Can title company and escrow company be the same company?

2. If seller picked, will title and escrow companies truly be neutral and unbiased, especially escrow company if - for whatever reason - the purchase does not go through and return our earnest money?

3. What % of the purchase price is a "normal" / reasonable earnest money deposit?

4. What are the things that can go wrong in this transaction and what should we look out for?

5. We asked the mortgage loan officer for recommendations on a title and escrow company and she responded that she's "worked with many of them and not had a problem" but wouldn't specify any particular company. Is there a reason why she wouldn't?

We're older but never owned a home before, having been life-long renters. This is the largest purchase of our lives and the anxiety is nerve wracking for me. We cannot afford to mess this up either through ignorance or through misunderstanding the rules. The home is in a good area and we like it. But we are BOTH nervous because of the $$$$$$$$$$$$$ involved (including the earnest money deposit) and can't afford to lose money after we've waited for decades to become first time home owners.

TIA for any guidance you can give us. Much appreciated.

1/2 - Choose a local company. It helps with communication flow. Never accept a company that is aligned with a “company” seller or buyer. (Meaning a company is assisting the other party on costs and specifies one - it is usually out of area as well). These corporate decisions /selections are arduous and arbitrary in process and don’t deal well with others in timely manner

3 - no national normal guideline. We’ve seen it go from $500 to 3% of purchase price

4 - go wrong? Lots can. Some is to your benefit. Get an inspector that is truely independent and finds issues. You want to know what’s wrong (or right) to make decision. Realtors usually don’t select a picky inspector as they are interested in deal going through so they get paid. After inspector - truely understand problems to decide what/if any concessions are needed. Definitely understand any “deferred maintenance” - like age of roof, HVAC, windows (if seal broke), etc. you don’t want to absorb all of it. We’ve seen everything from small issues to $80k deferred maintenance (sellers would concede only $2k - so we walked away and got earnest $ back)

Survey/title inspection/sellers remorse - lots can go wrong - but usually don't
Mortgage company underwriting - sometimes underwriters find issues/buyers situation is different than expected, interest rates change, etc - can cause problems. Usually there is a financial contingency in contracts.

Sometimes problems are inter related - inspection finds an issue that mortgage company requires it to be addressed prior to sale and sellers won’t do it. It happens.

In our new area - most of these “contingencies” are required to be resolved within 10 days during what is called an “options” period. Not all areas have the 10-day rule or recognize an option period.

5 - as long as escrow company is independent of parties - contract usually specifies how money can be returned


Not trying to scare you - but don’t get house fever. Walk/Crawl through this - slowly & safely. This is a large investment. Let the inspections verify / validate your purchase. You’d rather know there’s a few small $ problems to fix then be surprised by $$$$ issues after you have it - and now it’s 100% your problem.

Don’t see yourself in home until it’s very imminent. Be prepared, mentally to walk away. In all our purchases (>10), nothing happened except our last one. It happened repeatedly, on our last one, though! We did not think we would ever have to walk away, until last move.

 

[jazz4cash]

Why aren’t you using a buyer’s agent? At the very least interview a few. The commission is paid by the seller. As you say many details vary by location IME so some of the comments here may not apply to your location

 

[Aerides]

Given all your stress and anxiety about this purchase, have you hired your own RE attorney to help you locally with all this?

 

[latexman]

We're older but never owned a home before, having been life-long renters. This is the largest purchase of our lives and the anxiety is nerve wracking for me. We cannot afford to mess this up either through ignorance or through misunderstanding the rules. The home is in a good area and we like it. But we are BOTH nervous because of the $$$$$$$$$$$$$ involved (including the earnest money deposit) and can't afford to lose money after we've waited for decades to become first time home owners.

In your case, I'd recommend using an experienced (> 20 years), trustworthy (word of mouth) realtor. They know what is traditional, and the "ins and outs" of the business. Like, get a good house inspector/inspection; not a pencil-whipped checklist by some "youngling". I've bought houses with no realtor before, but we're on our 8th house now.

Relax, I'd wager your "retirement" is a much larger financial undertaking than a house, and you seem to be doing fine there. After all, you are here!

 

[FindingForward]

Given all your stress and anxiety about this purchase, have you hired your own RE attorney to help you locally with all this?

This^ I "didn't know what I didn't know" on my first house purchase - I was young and there was lots of legalese on those contracts! No Google in those days to get help/advice.

Although many people who bought and sold houses themselves, including my parents, confidently told me I didn't need an attorney, (including the realtor who probably feared I'd hire a deal killer) I hired a RE attorney just the same.

They did my title work, so I didn't have to pay a separate title company and the few hundred extra was the best peace of mind I ever spent!

 

[folivier]

In Louisiana the buyer chooses which title and escrow agent they want to use.
I agree on being selective on which inspector you choose to use. But in my experience the inspector usually will miss some important items. In our condo purchase our inspector did ok but missed the fact that while the heater did work it was too small to heat our condo. $850 later and it works.

 

[cathy63]

Your profile says you are in California. Is the home you're buying in California? Here's my experience based on selling a place here last year.

1. The buyer's agent and seller's agent will come to an agreement and pick title and escrow companies they both know and have worked with in the past.

2. The escrow company doesn't make decisions about returning money. The escrow company's job is to create escrow instructions, get both parties to sign them, and then follow those instructions to the letter. They will do exactly what the signed instructions say to do and nothing else. If the instructions say your earnest money will be returned under certain circumstances and those circumstances come to pass, then you will get your money back.

3. We didn't get a percentage. One offer came with a $5K deposit and the other with $20K. Neither one of those was a meaningful percentage of the sales price. Offer whatever amount your buyer's agent says to offer. That will be the amount that is customary in your community.

4. The biggest thing that can go wrong is not to have an expert looking out for your interests. Purchasing real estate in CA is not something a novice should DIY, especially someone who "cannot afford to mess this up". The buyer's agent's job is to protect your interests. Their commission is paid by the seller, so it won't cost you anything to have one. You can also ask the seller's agent to represent you, in which case both you and the seller will have to sign paperwork saying you know this person is working for both sides; but since you're worried about being treated fairly and this is the first time you've ever bought property, get your own agent.

5. The mortgage loan officer is most likely not allowed by their employer to recommend any specific title or escrow company. It's also probably true that they are all about the same and the loan officer really doesn't have a preference.

 

[MarieIG]

Given all your stress and anxiety about this purchase, have you hired your own RE attorney to help you locally with all this?

This.

Real estate transactions vary from state to state / location to location.

 

[Teacher Terry]

In Nevada you can use the inspection to back out and get your money back. I have bought 6 houses here and backed out twice. Also if the inspection shows a lot of issues like when I was selling my house in 2021 they came up with 24k and my buyer had bid 30k over asking I just cut it off the price. I was buying a condo I really wanted and didn’t want to lose it over this amount of money. The buyer could have backed out but didn’t because they really wanted the house.

I backed out of my condo purchase because the real estate ad said that all utilities were included in the 600/month hoa fee. It was high but figured with utilities it was fine. I followed up after making my offer and found out that wasn’t true so withdrew my offer and got my money back. I was out the inspection fee of 700 and could have taken them to small claims court but was too exhausted between the divorce and moving.

 

[LateToFIRE]

FYI, I've bought r.e. in a couple different regions (U.S.) and noticed that in some the norm is that buyer does not need own attorney, relies on broker, and in others the norm is that buyer is represented by own attorney (NYC). Regardless, I bring my own attorney into the picture and they review EVERYTHING (docs, title co, etc.). Well worth the fees given the size of the transactions.

 

[ivinsfan]

Well IMO you have omitted one of the most important questions?



Who will do the appraisal? This is pretty important. Are you willing to pay for an appraiser privately? Because if your appraisal comes in in under your offer price, you have immediate issues to deal with.

 

[Teacher Terry]

I have bought houses in 3 states and the buyers always pay the appraiser. If the appraisal comes in lower than the offer you can back out, ask the seller to lower their price or come up with the cash to make up the difference. I had to lower my price once by 5k when this happened to my buyer and they didn’t have the cash to make up the difference.

 

[ivinsfan]

I have bought houses in 3 states and the buyers always pay the appraiser. If the appraisal comes in lower than the offer you can back out, ask the seller to lower their price or come up with the cash to make up the difference. I had to lower my price once by 5k when this happened to my buyer and they didn’t have the cash to make up the difference.

In todays market does it pay to get your own appraisal? I'm not sure how much they cost. I know since the brokers and appraisers work very closely together and sometimes their objectivity can come into question. I have a ex in-law who is an independent appraiser and she has some stories.

 

[Stormy Kromer]

Given all your stress and anxiety about this purchase, have you hired your own RE attorney to help you locally with all this?

I see no reason for you to hire anyone. I would not consider purchasing a home without my own realtor representing me. ( I would not consider an agent working in dual capacity either.)

Its like going to court without an attorney.

 

[LateToFIRE]

Interesting that folks think the appraiser's role is significant. The only time that's come into play in my transactions has been related to mortgage - its the bank's appraiser that counts the most. If a buyer asked me to lower the negotiated price due to a low appraisal, I'd tell them to go take a hike, but maybe I've just been fortunate to have sold into seller's markets.

 

[marinauser]

There are two types of escrow so it is important to know which type the posters are referring to. Escrow for the sale usually means the company that takes in all of the money paid during the sale and then distributes that money to where it needs to go - the seller, the mortgage company, any taxes that need to be paid and anywhere else. The second type of escrow is associated with and may be the mortgage company that you use (if any). When you make your mortgage payment, you typically pay extra which this escrow will hold and eventually use to pay your property taxes each year as well as your home insurance. Some lenders will waive this type of escrow and you just pay those yourself much like if you had no mortgage.

In my experience, any of the big title insurance companies should be fine. I would have a lawyer experienced in real estate sales in your area help you and review your purchase contract and be present at the closing, especially since this is all new to you. If any issues come up at closing, they can be dealt with. Such issues could include easement issues, items to be left in the home, or the seller trying to negotiate a different date to be out of the property. The lawyer should review the title insurance policy and any exceptions that they try to list. While no issues will probably come up in the future, they could and that is why you also have title insurance - for me both types - one that protects you and one that protects the mortgage company. I have had title insurance issues come up at closing and we were able to resolve them because the lawyer was there.

There is no standard amount of money to pay for the seller to hold when you both sign the purchase agreement that I know of. I have seen hundreds of dollars and tens of thousands of dollars. In part I suspect it depends on the total value of the sale - a $2 million dollar house probably demands more than a $200k house. As a buyer, your goal is the smallest amount that you can negotiate with the seller.

 

[Aerides]

I see no reason for you to hire anyone. I would not consider purchasing a home without my own realtor representing me. ( I would not consider an agent working in dual capacity either.)

Its like going to court without an attorney.

For most people I would agree, but this OP has a lot of concerns, and questions they've asked over several threads and several months. They've already had enough issues to back out of a prior attempted purchase. So they could benefit more than most from someone handling all the legal questions.

 

[Sunset]

Remember when you sign the agreement to purchase, you have already reduced the effectiveness of having a lawyer.

Now I've always done it this way, signed the agreement without having a lawyer review it.
When I brought it to my lawyer, he pointed out, even if the contract had terrible things in it for me, I had already signed it.

One time I got burned as I didn't catch the difference between "ceiling" and "roof" when the phrase said "the seller will repair the ceiling"
Would a lawyer have caught it since he didn't see the house

For home inspections. Be there and follow the inspector. It makes sure they do the job and they can verbally say more than will be on the report, and it's educational.