Once your offer has been accepted (congrats!) you will be on the fast track needing to get a lot of things done in a very short amount of time. In the purchase agreement, you are provided with a specific set of timelines. The Buyer is contractually obligated to perform their due diligence within these periods.
GOOD FAITH DEPOSIT
When you make an offer you decide how much money you are going to put into escrow as your GOOD FAITH DEPOSIT. This is considered a portion of your down payment, but to the seller it is an assurance that you intend to close. It is standard practice to provide a good faith deposit that amounts to 3% of the purchase price. This deposit goes towards the final purchase amount and is not an additional fee.
The following contingencies are especially important to both the Buyer and Seller during the escrow period.
PHYSICAL: per the California Association of Realtors (CAR) purchase agreement, a buyer “has (said amount) days after acceptance, unless otherwise agreed to in writing to complete all buyer investigations.” This means that you should have all your inspections completed prior to your contingency period expiring. You should also have addressed any issues you either want fixed or credited towards escrow costs. Make sure you have reviewed all the appropriate seller’s disclosures, including any Homeowners Association (HOA) docs if you’re purchasing a condo, and addressed any concerns prior to removing this contingency.
APPRAISAL: per the CAR purchase agreement, this “agreement is contingent upon a written appraisal of the property by a licensed or certified appraiser at no less than the purchase price.” This appraisal is usually ordered by the bank/lender that is doing your loan. Make sure the appraisal meets the necessary criteria and that your lender gives you verification to remove this contingency. If the property fails to appraise you may still have options that allow you to move forward with the purchase, it is important to discuss those with your Realtor and Lender.
LOAN: per the CAR contract, a buyer “shall act diligently and in good faith to obtain the designated loan.” While your lender plays a crucial part, being able to remove these contingencies will fall on your shoulders. It is important that you are moving quickly to get your lender all requested paperwork. Again, make sure your lender has final loan approval from the bank before you sign off on your loan contingency.
TITLE: You always want to make sure that you have a CLEAR title. “A CLEAR TITLE is a TITLE without any kind of lien or levy from creditors or other parties and poses no question as to legal ownership.” (Investopedia.)
Once you have removed all your contingencies, you have forfeited your right to your deposit. This is not an issue if you close escrow successfully and the full amount of your deposit applies towards your purchase. It’s a significant financial loss for those that fail to close escrow after signing to remove all of the contingencies. Therefore, you should only remove all of the contingencies if you are certain you have availed yourself of all of the information necessary to do so. Your real estate agent should always be on top of contingency dates and in constant contact with your lender and escrow officer. This will help to make sure that everything is going smoothly and if any problems start to arise, they can be addressed quickly to avoid any breach of contract.