Escrow is a common term in the real estate sales process. When you complete a home sale or purchase, you will quickly face the escrow process. For this reason, it is important that you understand what it means and the steps involved to complete the sale. By understanding the process, you will get a more realistic timeline that includes what to expect in terms of weeks to complete the process as well as the legal requirements you will face.

First-time buyers are always curious about how long the escrow and closing process is in California so we have created a short guide to help you understand what to expect with escrow in California.


What is Escrow?

Let’s start with a quick definition. The term “escrow” refers to the time frame and events between contract and closing. It starts when you sign a purchase contract with the seller, and ends when you close on the house. The term escrow refers to the legal account in which a third party institution (often a lender) holds a large sum of money that is intended for a real estate purchase while specific conditions to fulfill the sale are met.

Money for a deposit is placed into an escrow account to demonstrate “good faith.” This means that the potential buyer intends to follow through on the sale. The lending institutions then use the escrow accounts to make future payments related to homeowners insurance and property taxes. This type of escrow account can exist for the full life of the mortgage.

Several important steps happen during the escrow process in California. They include the home appraisal, inspection, mortgage underwriting, title search, and document preparation. You will be directly involved in some of these steps, and less involved in others.


Why Do You Need Escrow?

Having an established escrow account is a standard requirement for most lenders. Not only does the pre-sale escrow show your good faith intentions as a buyer, but the post-sale escrow account funds major expenses (like taxes and insurance) throughout the life of the loan.

Although you could save on monthly payments and pay for these out of pocket, it is often helpful to have these funds available in the early years of your mortgage.


How Long Does Escrow Take to Close in California?

In California, as in many states, the real estate escrow process can take an average of 30 to 40 days. More complicated transactions can take longer and more straightforward transactions can be sped up.

The time that passes between opening the initial escrow account and the final closing paperwork can vary based on several factors, such as whether you buy an existing home, build a new property, or work directly with a seller (without a real estate agent). Some homes clear the title search process without any issues while other properties might have title “defects” (such as a lien or legal judgment) that require additional research.

In most cases, escrow can be closed successfully within the agreed-upon time frame specified in the contract. As a home buyer, the best thing you can do during the escrow process is to stay in close contact with your mortgage company. Also, if any issues or requests for additional information do arise, handle them as quickly as possible to keep the closing on track.


Escrow Period–The Closing Timeline

In the sections below, discover what each step in the escrow process involves and how long you can anticipate each stage to last.


1. Make and Settle an Offer

Price is the first thing for the buyer and seller to agree upon. Negotiations can take a few days or weeks to complete since there are several parties involved who do not necessarily have direct contact with one another. The escrow timeline begins only after the seller accepts an official offer.


2. Initial Escrow is Opened

Once the buyer has the purchase price in mind, they must proceed with depositing earnest money into a new escrow account. This deposit is typically 1-2% of the total home purchase price and must be deposited in cash. The percentage required may be larger in more competitive markets but this money acts as an assurance of good faith that the buyer is prepared to proceed with the purchase. In California, it is usually the seller who chooses the escrow company, but that is not a requirement. The buyer could choose it as well. It just needs to happen so the deal can move forward.

This phase can last anywhere from one to three weeks, depending on how long it is needed and when the home inspections are scheduled.


3. Home Inspections Occur

Once the buyers and sellers have entered escrow, the mortgage lender will order a home appraisal. The appraiser’s job is to determine how much the house is worth in the current market. This helps prevent a situation where the home loan exceeds the value of the property.

This step will also include a title search, another important step in the California escrow process. The “title” is a legal term that refers to ownership. As part of the escrow process, a title company will usually check to ensure that there is a clear chain of ownership, with no liens or court filings that might prevent a sale.

The inspection process itself only takes about a day, but any responses or actions needed as a result could take a few weeks to resolve.
Most inspections and appraisals are designed to find:

  • The home’s appraised real estate value
  • Major structural deficiencies
  • Pest problems, particularly termites
  • Electrical, gas or water irregularities


4. Buyer Receives Loan Approval

Most buyers will secure pre-approval in which the buyer must submit personal financial information that demonstrates qualification for a new loan. This might also be referred to as mortgage underwriting. An advanced approval shows that there will be future funds available once final documents are signed.

Buyers should set aside time to secure all of the financial documents that the lender requests. Once the lending institution has these, they can often provide a pre-approval within a few days.


5. Lender Funding is Complete

Depending on the type of home sale, there are a few steps that may take place prior to final lender funding, including repairs, appraisal checklist items and final maintenance. Once those steps are settled and the buyer confirms, the buyer and lender can move forward with final funding. During the lending approval process, the buyer should not make any major financial changes, such as opening new credit accounts or switching employment.

This step happens about four weeks or a month after the initial offer is discussed.


6. Final Walk-Through and Closing

The final walk-through typically occurs less than 5 days before the final closing meeting. The buyers, a settlement agent or attorney and potentially a title agent will have the mortgage information from the lender on hand and help facilitate the final sale and legal exchange of all necessary documents.


7. Transfer of Title and Ownership

On the final day of the escrow timeline, the title of the property passes from the seller to buyer. This is the final step in the California escrow process, and the most important. At this stage, the home buyer will provide a check for the closing costs that are due. The buyer and seller will sign a variety of documents relating to the sale. The title or escrow company will update the status of the title to reflect the transfer of ownership. Mortgage documents will be returned to the lender after they have been signed, and shortly after that the lender will release the funds.


Anticipating Escrow Problems

Buying a home or selling a home will probably be among the largest financial decisions a person will make in their lifetime. Therefore, it is important to address all possible problems before these challenges arise to ensure a smooth closing process. The “easy” escrow is no longer a reality for many people.

Once a property is “in escrow,” there are a few scenarios that could occur to have the house “fall out” of escrow. There are four main areas that are most common in a real estate purchase. They consist of lender requirements, appraisals, title issues and home inspections. Anticipating these four issues will increase the probabilities of a smooth and successful closing. They will also help you in gaining control of the transaction.


1. Stricter Lender Requirements

Lenders now have stricter requirements than ever before. Many lenders do not issue pre-approvals as they once did. If this is the case, talk to the lender to be sure they have at least verified the buyer’s income and assets.


2. Home Appraises For Lower

Appraisals have always been an integral part of a purchase contract. An appraisal always had to appraise the sales price of a property. The VA will allow the parties in a transaction to supply additional market data along with the appraisal. Appraisal companies are now assigned by a third party and not the lender, automatically causing some delay in the transaction.


3. Title Defects

Title defects such as liens, owed property taxes, HOA, and mechanics liens are some of the most common. When escrow is opened the Title Company does a Title search. However, sometimes these are not accurate and it is possible for a mechanics lien to not show up for up to 120 days after the recording of the lien. Since many banks control the short sales and REO’s, title defects are more prone to be an issue.


4. Failed Home Inspection

Many short sales and REO’s are sold “As Is”. However, the buyer still should perform a home inspection on the property by a qualified licensed inspector. Homes that have been vacant for lengthy periods of time may have problems such as missing air conditioners, water heaters, thermostats or a variety of other issues. Asking for these items to be replaced or repaired can cause major delays in the closing process. A buyer needs to anticipate these types of problems before writing a contract. It will allow them to stay on top of potential problems and address them immediately.


Why Choose Citrus Heritage Escrow?

When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.

Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200