Explaining Escrow: The Escrow Process in California

What are the escrow steps? The California escrow process has 10 steps: 1. Prepare Escrow Instructions. These are done on the escrow holder’s printed forms. All principals – the buyer and seller -- sign the instructions, which set forth the parties’ understanding of the transaction. An initial deposit usually accompanies the instructions. For a home purchase, the instructions must include: • Purchase price and terms; • Agreement as to mortgages; • How buyer’s title is to appear (called “vesting”); • Matters of record subject to which buyer is to acquire title; • Inspection reports to be delivered into escrow; • Proration adjustments (involves taxes and insurance); • Date of buyer’s possession of the property; • Documents to be signed by the parties, delivered into escrow, and recorded; • Disbursements to be made, costs and charges and who pays for them; and • Date of closing. 2. Order Title Search. This title search is performed on the subject property, resulting in a “Preliminary Report” from a title company. The escrow holder examines this report for items not contemplated in the instructions. For example, is there a lien (or additional loan) on the property that wasn’t reported? The seller must clear any such item or it must be brought to the attention of the buyer. 3. Request Demands and/or Beneficiary Statements. This request for information goes to any lenders of record. The document will be either: • a “Demand for Pay-off,” if the seller’s existing loan is to be paid in full through escrow; or • a “Beneficiary Statement,” if buyer is purchasing the property “subject to” or assuming a loan. 4. Accept Structural Pest Control Report and Other Reports. These reports might include plumbing or roofing reports. They all pertain to the property’s condition, and are kept in escrow. The escrow holder might also obtain any necessary approvals from the seller or buyer due to information in a report. For example, whether the home needs to be sprayed for insects. The reports are delivered at close of escrow. 5. Accept New Loan Instructions and Documents. This happens if the buyer is obtaining new financing for the home. The escrow holder also obtains the buyer’s approval/execution of the documents. The escrow agent must also satisfy all lender’s instructions before using the lender’s funds to complete the transaction. 6. Accept Fire Insurance Policies and Complete Settlement. By this step, it’s almost time to close the transaction. Here, following the buyer’s and seller’s instructions, the escrow holder: • accepts and delivers any fire insurance policy and transfers the insurance; • makes all payments on property taxes and insurance (called “prorations”); • completes the accounting (settlement) details; and • informs the principals that escrow is ready to proceed. 7. Request Closing Funds. The escrow holder cannot disburse any funds until all items, such as checks or drafts, have cleared and become available for withdrawal. 8. Audit File in Preparation for Closing. In this step, the escrow holder: • accounts for all funds and documents; and • determines that the parties have complied with all escrow instructions. 9. Order Recording. At this point, the escrow holder authorizes the title company to run the seller’s title and to record the necessary documents. This can happen provided no change has occurred in the seller’s title since the preliminary title report was issued. 10. Close Escrow. This is what you’ve been waiting for! Closing the deal. The escrow holder can “close escrow” after confirming recording, by: • preparing settlement statements for buyer and seller; • disbursing all funds; and • delivering documents to the party or parties involved.

 

January Newsletter

January 10, 2014 economic update

 

The labor market closed out 2013 by adding just 74,000 jobs in December, the lowest number of new jobs since January 2011. However, the unemployment rate fell from 7% to 6.7%, the lowest since October 2008, the Labor Department said, mostly due to a drop of 347,000 in the labor force -- the number of Americans working or looking for work. Most economists feel that the low number was an outlier and not an indicator of the future of the job market. By contrast, ADP’s survey showed that businesses added 238,000 jobs in December, the most in 13 months and economists were predicting a jobs report closer to the 200,000 mark.  The Labor Department's report showed businesses added 87,000 jobs while federal, state and local governments cut 13,000. Job gains for November were revised upward to 241,000 from 203,000. All told the economy gained an average of 182,000 jobs per month in 2013 essentially the same as in 2012 (2.18 million jobs in 2012, 2.19 million in 2012). Congress continues to debate an unemployment insurance bill that would extend emergency unemployment insurance for the 1.4 million Americans.

This disappointing job report caused rates to drop sharply throughout the day. By the end of the day rates dropped by about 1/8% in rate or 1% in loan fee! It was a shockingly low number that took everyone by surprise. The question now is: what does this do to the Federal Reserves announced drawing down of mortgage and bond buying stimulus program? The announced draw down has driven rates up.

 

Stocks were mixed this week as investors processed the jobs numbers as well as disappointing returns from Sears, and news that the Target credit card data breach was larger than expected. TheDow closed out the week at 16,437.05 down -0.2% from last week’s close of 16,469.99. The Nasdaq closed at 4,174.66 up 1.03% from last week’s 4,131.91 close. The S&P 500 finished the week at 1,842.37 up 0.6% from last week’s 1,831.37 close. 

  

The 10-year Treasury note yield rate spent the week diving back under 3% ending at  2.88%, after last week’s 3.01% close, the highest number seen since July 2011.  It was 1.91% a year ago.

 

Interest rates remained relatively flat this week as the Market waits the see how the Federal Reserve will move forward with the bond-buying program. Policy makers at the Fed including the newly-appointed Janet Yellen will meet later this month to set the pace for the bond-buying taper. The Freddie Mac Weekly Primary Mortgage Market Survey showed that the 30-year-fixed rate dropped slightly to 4.51% from 4.53% last week.  The 15-year-fixed rose to 3.56% from last week’s 3.55%. A year ago the 30-year fixed was at 3.40% and the 15-year was at 2.66%. Expect these rates to be lower when announced next week due to today's drop. Jumbo and high balance conforming rates are about 3/8% higher than the Freddie Mac rate.

 

The new mortgage rules issued by the Consumer Financial Protection Bureau take effect today. The rules are designed to discourage predatory lending. Most lenders have already adopted these practices so there shouldn’t be too much difference however there will be increasing attention paid to a borrower’s debt-to-income ratio; it may become harder for people with higher debt loads to get approved for a new home if they cannot stay below the 43% debt-to-income ratio.

 

The latest Fannie Mae Monthly National Housing Survey for December shows that 49% of U.S. adults say home prices will rise throughout 2014, up from 43% in December 2012. The survey showed that 33% of homeowners say it’s a good time to sell, up from 21% a year ago. People also believe that home values will rise more this year: 3.2% in December compared to 2.6% in December 2012.

CoreLogic released data showing that U.S. home prices increased 0.1% in November, up 11.8%from a year ago but showing a slowing pace of increase. These figures aren’t adjusted for seasonal patterns.

10 things that could harm your home's value

1. A pool. Forget what you might have heard. An in-ground pool in most parts of the country doesn't automatically raise the value of your home. "I would stay away from pools if you can at all avoid it," says Irwin.

Having a swimming pool will automatically limit your market when it comes time to sell, he says. "It's constant upkeep, they get cracks, the equipment goes down and it's expensive to replace, and the liability is high."

Others consider it a mixed blessing. "For the people who want the pool, they're willing to pay for it," says Austin. "But there are an awful lot of people who don't want a pool."

Consider your home value and location. In a million-dollar house, not having a pool is a detraction, says Irwin. "But they won't give you much more" if you do have one.

 2. No garage or small garage. Unless you're living in a condo, retirement community or historical or in-town neighborhood, most buyers will look for at least a two-car garage. "If you don't have a garage, it's a real negative," says Austin. "If you have a one-car garage, that's a problem, too."

3. Garbled floor plan. Small rooms and bathrooms, an inconvenient floor plan or a layout that requires you to access bedrooms or bathrooms through other rooms will detract value from your home.

4. Outmoded appliances or systems.Who wants an electrical system or plumbing system incapable of handling modern conveniences? Would you buy a home if the appliances were worn or broken?
Phipps remembers walking into one house with clients who casually opened the oven door -- and it fell off.

5. Stale or overly personal decor.Sure, red is the hot wall color right now, "but for how long?" says Hummel.
"We've gone into houses where they've had purple walls or electric green," says Austin. "It's a turn-off to many people."

 6. A bad roof. Roofs are expensive to replace and a good roof is considered standard equipment in a house. If your roof has problems, expect to take a hit in the price.

 7. Bad location. Phipps remembers one neighborhood with a significant difference in value between the even- and odd-numbered houses. The reason? The odd numbered ones backed on an interstate highway, as well as some ugly utility lines.
As a result, "the even-numbered houses were worth about 10 percent more than the odd-numbered homes," he says.

8. Poor maintenance. "If you've got an old roof and outdated paint, I don't care if you've updated the kitchen, you won't even get the buyer out of the car," says Bredemeyer.
"If you know you've got to have something fixed, fix it," says Zollinger. Otherwise, people "will subtract the cost or not make an offer on the house. And if people think the house hasn't been taken care of, they will wonder what else they're not seeing."

9. Environmental hazards.Besides being a danger to human health, lead, mold or asbestos can kill home value. 

10. A laundry list of needed improvements. "It detracts if you have to do work," says Gaylord. "A house that you can move in today -- and it's livable -- is fine."
But a list of must-dos just to conduct everyday life will scare off a lot of potential home buyers. "Especially with first-time buyers," he says. "Most of them are [already] scraping just to get in."

New Wilshire Grand Renderings Show Sky Lobby And The Highest Rooftop Pool On The West Coast

          

The 1950s-era Wilshire Grand hotel has been completely demolished and construction on its 73-story office/hotel/retail skyscraper replacement has begun (see last photo). Now we have new renderings (via broker/blogger Brigham Yen) of the tower by architect AC Martin—these have not yet been approved by developer Korean Air—including many of the seventieth-floor sky lobby, to which guests will shoot up in an express elevator before checking into their rooms (very Lost in Translation). The renderings show a spire that can change color to reflect holidays and observances, and a rooftop pool that will be the highest on the West Coast (an "outdoor living room" is also planned). The hotel will be four stars and have 900 rooms, run by an operator to be announced soon—choices have narrowed down to two; rumors indicate it'll be a Grand Hyatt or a Waldorf-Astoria (!!). The tower should open in early 2017.

                      

Sky pool deck 

    

Outside the hotel lobby at Seventh and Fig 

    

Inside the hotel lobby 

    

Ground-floor lobby 

    

Sky lobby seating 

    

Bar at the sky restaurant, above the sky lobby 

    

Sky restaurant 

    

Cross-section of the top floors

The Top Ten Real Estate Trends for 2014

Millennials are moving the market, but not as homeowners

Though the so-called Millennial generation has been much-maligned in the media, real estate movers and shakers are increasingly interested in where this generation is headed -- quite literally. A number of the cities have seen increased economic activity in the real estate sector led by this generation, particularly Austin, Seattle, Portland and the Twin Cities in Minneapolis.

Minneapolis' place as number nine on a list of the top 10 cities for developers came as a surprise to Andrew Warren, director of PwC, a research and advising firm that co-authored the report with ULI.

"This is a city that's attractive to younger generations," he said, adding that its diverse economic base is helping to bring in a lot of college grads that don't want to leave the Midwest.

However, this same group isn't forming new households, and they're not buying as many homes as their parents' generation were at their age.

Second-tier cities will lead the recovery next year

Investors, developers and builders are losing some interest in the so-called 24-hour gateway cities -- San Francisco and New York City -- and have developed more interested in cities like Dallas and Portland, where there are more housing deals to be had.

For example, in 2011 only New York City and Washington, D.C. had good prospects for real estate investors and developers, according to the ULI report, but now Austin, Boston, Dallas, Houston, Miami, Orange County, Portland, San Francisco, San Jose and Seattle make that list -- and D.C. actually dropped out.

Real estate recovery still hinges on job growth

The slow pace of job growth as well as income and wage growth is still holding back the real estate recovery and that's not likely to change quickly.

Many cities in the Bay Area and in Texas have seen strong housing recoveries based on the strength of their economy, said Stephen Blank, ULI senior resident fellow for finance, so places with low unemployment can expect better recoveries next year, while places still haunted by economic issues won't.

The "smile investing" philosophy is back

Real estate developers are interested once again in a so-called smile investment philosophy, Warren said. According to the philosophy, developers and investors start looking at cities in the Northeast and moving south to cities along the Sun Belt -- Florida, Texas, Arizona -- and then coming back up to the Northwest -- Northern California, Oregon and Washington state. So expect to see more activity in those areas than in the Midwest.

Multi-family apartment building will wane

With rapidly rising demand for apartments during the recession -- boosted by increased demand from homeowners-turned-renters -- multi-family building surged. But that's likely to quiet down in 2014, as supply and demand have swapped places -- and there may actually have been too much multi-family building in 2013, Blank said.

Condo development is still on the back-burner

The recovery in the condo market hasn't matched that of the single-family market, and developers aren't willing to take the risk on putting up new condo buildings.

Instead, builders and developers are taking a dual-track option: They build a rental apartment building with an eye on switching it to condos in 12 to 16 months, depending on market conditions, Warren said.
High-end apartment buildings are also proving problematic for developers, as the interest from well-heeled potential renters simply hasn't been consistently strong.

Inventory is coming back

The experts at ULI are predicting that 2014 will be the last year that low inventory will aid property prices. Distressed inventory is drying up and sellers are looking at better profits than they have in years.

The buyer's market is long gone

Homes right now are priced to please sellers. "For buyers, they're priced to disappoint," Blank said.

Sellers now know they can squeeze buyers eager to buy before interest rates and home prices shoot up even further.

Shadow banking is emerging

There's optimism among those surveyed by ULI that lending standards will loosen next year, but Blank isn't as sure.

To fill the void, a concept called "shadow banking" has started to emerge and may take on a larger role in the lending market next year. Shadow banking is similar to traditional bank lending, but it's done outside banks and can therefore get around bank regulations.
Borrowers going this route will find a hodge-podge of private funds, wealthy individuals, family offices, and refugees from other lending markets, according to the report.

The suburban is going urban

There's not a lot of interest in developing suburban areas, Warren said. But where there is, it's surrounding more urban-minded projects located in spots where amenities and public transportation are easily accessible.

Happy New Year!