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Step-by-Step Home Buying Process in California (For a Cash Buyer)

  1. Determine Your Budget
  • Why? You’ll avoid overextending your finances and ensure you can cover the purchase price, closing costs, and any post-purchase expenses.
  • How? Review your available funds, factoring in liquid assets and any investment you plan to use.
  1. Find a Real Estate Agent
  • Your Agent Compensation: The seller typically pays the buyer’s agent compensation (usually 2.5–3% of the sales price). When you make an offer, your buyer agent compensation will be asked from the seller and could be part of the negotiations to help you win the deal.
  • A Buyer Agent Agreement is a contract between a homebuyer and their real estate agent that outlines the agent's responsibilities and ensures the buyer is exclusively working with them. Its purpose is to formalize the relationship, clarify services provided, and protect both parties, often including terms like loyalty, compensation (typically paid by the seller), and the area buyer are searching for the their home. Effective January 1, 2025, all buyers' agents in California will be required to sign a buyer-broker representation agreement with their buyer clients as soon as practicable, but no later than the execution of the buyer's offer to purchase real property.
  1. Search for Homes
  • Communicate your preferences (location, size, style, etc.) to your agent.
  • Tour homes and evaluate properties that meet your needs.
  1. Make an Offer

Your agent will draft an offer, which includes the following key elements:

  • Purchase Price: The amount you’re offering to pay.
  • Contingencies:
    • Inspection Contingency: Allows you to back out if the inspection reveals major issues.
    • Appraisal Contingency (Optional): Ensures the property value aligns with your offer price. Many cash buyers waive this contingency.
    • Insurance Contingency: Lenders require the borrower to obtain a home and fire insurance as part of the loan process. When you buy a home as a cash buyer, it’s recommended to obtain such insurance for your future protection.
  • Earnest Money Deposit (EMD): A deposit (typically 1-3% of the purchase price) showing your commitment to the purchase. This is held in escrow and goes toward the final purchase price if the sale closes. Buyers with the 3% EMD could be considered a motivated and stronger buyer.
  • Closing Date: The target date to finalize the sale, often quicker for cash buyers (15-30 days).

Escrow and Due Diligence

  1. Submit Earnest Money Deposit
  • Deposit the EMD into escrow within 1-3 business days after the offer is accepted.
  1. Conduct a Home Inspection
  • Hire a licensed home inspector to evaluate the property’s condition.
  • Common Issues Checked: Foundation, roof, plumbing, electrical, and HVAC.
  • If issues arise, you can negotiate repairs, request a credit, or back out if you have an inspection contingency.
  1. (Optional) Obtain an Appraisal
  • While not mandatory for cash buyers, an appraisal ensures you’re paying fair market value for the property.
  1. Review Title and Disclosures
  • Work with the escrow officer or title company to review:
    • Title Report: Confirms there are no liens or claims against the property.
    • Seller Disclosures: Details about the property’s condition, repairs, or known issues.
  • Purchase title insurance to protect your ownership rights.

Closing the Deal

  1. Final Walkthrough
  • Conduct a walkthrough to ensure the property is in the agreed-upon condition.
  1. Review the Closing Statement
  • This document details all costs, including the purchase price, escrow fees, title insurance, and prorated property taxes.
  1. Wire the Funds
  • Transfer the full purchase price, including closing costs, to the escrow account before the closing date.
  1. Close Escrow
  • What Happens?
    • Sign the closing documents, including the deed.
    • Escrow records the deed with the county, transferring ownership to you.
    • Receive the keys to your new home!

Key Terms Explained

  1. Contingencies: Conditions allowing you to back out of the deal without penalty (e.g., inspection, appraisal).
  2. Buyer’s Agent Commission: Paid by the seller as part of the total commission, typically split between listing and buyer agents.
  3. Closing Date: The day the sale is finalized, and ownership transfers to you.
  4. Earnest Money Deposit (EMD): A refundable deposit held in escrow as a good faith gesture.
  5. Home Inspection: A detailed evaluation of the property’s condition to uncover potential issues.
  6. Title Insurance: Protects against title defects or legal claims against the property.

Pro Tips for Cash Buyers

  • Speed: Without a loan, you can negotiate a quicker closing, which is attractive to sellers.
  • Negotiation Power: Cash offers are strong, giving you leverage to negotiate price or repairs.
  • Title Insurance: Always purchase it to protect your ownership.
  • Contingencies: You may choose to waive certain contingencies (e.g., appraisal) to make your offer more competitive.