Once the offer/contract is agreed upon by both the buyer and the seller, official copies of the contract are distributed to the attorneys of both parties. The attorneys are charged with reviewing and approving said contract to ensure their clients are receiving the best deal possible. After this is completed, a professional assessment will be made during the home inspections to ensure the home is satisfactory. If there are any issues found, they will be addressed and negotiated by the buyer and seller. Additionally, if the buyer isn’t using cash, they will apply for a mortgage loan and make a commitment the lender of their choice. During this time, the seller needs to collect all relevant documents such as a survey, paid tax receipts, a title search, and any other legal documents they may have in their possession. This can also include mortgage statements that they will also hand off to their attorney. Their attorney will then update the survey and title search as necessary so they can send this information to the buyer’s attorney for official review. The buyer’s attorney will complete a thorough review of the documents before participating in a title examination.
The preliminary report must be prepared before the title insurance policy is officially issued to represent who the legal owner of a specific piece of land or property is. This also contains any defects or liens on the property that won’t be covered in the following title insurance policy. It’s extremely important that buyers know the difference between the Preliminary Title Report and a Full Chain of Title report. The biggest difference is that the Preliminary Title Report contains the most up to date vesting deed and the Full Chain of Title report incorporates multiple copies of every single transfer copy of the relevant source documents within the past 30 years. The homebuying process would not be fully complete without the preliminary title report. This report decides how in what way the title insurance company will officially issue their title insurance policy. Within this report is the information and contingencies that must be resolved before the title is clear.
Once the title examination is complete, the seller’s attorney and the bank’s attorney will receive the updated title report from the buyer’s attorney. This title report completely outlines all the documents that are needed to officially complete the sale and the buyer’s attorney will receive they documents to review them for a final time before closing occurs. Throughout this entire process, the buyer is also working alongside their lender to make sure their loan will be cleared for closing. As soon as all title defects have been resolved and the title documents are fully examined, the loan should be cleared to close if the buyer isn’t using cash. Once all of these requirements are met, both parties set up an appointment to official close on the property and transfer ownership. To prove their identity, the buyer needs to also sign a Statement of Identity form that is provided to them by the escrow company. This is to ensure the escrow company can distinguish this specific buyer from other people who may have their same name. The Statement of Identity form will keep you from assuming the burden of someone else’s liens or bankruptcies.
The escrow providers within the state of California are regulated by five different state agencies. These agencies are the departments of Insurance, Corporations, Banking, Real Estate, and Savings & Loans. Within the entire state, the Department of Corporations officially regulates 1,212 different independent escrow companies. All of the escrow companies that perform these services in the state of California are licensed companies. Buyers never have to worry about receiving professional service when they are buying a house for the first time in California.
An escrow company is extremely important to ensure a smooth buying experience. The escrow company is responsible for:
The escrow company will then receive a deposited down payment from the buyer and the deed from the seller. If the buyer is using cash, they must provide the proper amount of funds for the deposit to the escrow company before closing. The lender will supply the funds for the loan if the buyer is not paying with cash.
There are five major players involved during the escrow process. Each has a unique role to play when it comes to a successful transaction when buying or selling a home. They are listed below.
The property taxes that exist throughout the entire state of California are below the property tax national average. The real estate property is always reassessed every time ownership is transferred from one buyer to another and the property tax is most commonly set at 1%.
1. Property Tax
The amount of taxes a homeowner must pay for their property is an extremely important part of the entire real estate process. Property owners are required to pay annual taxes on their property include both federal and state taxes. These taxes must be paid each time the property is bought, sold, or given away. The stipulations that include who should pay the taxes are usually negotiated between the buyer and seller given the percentage responsibilities may vary.
2. Assessment Tax
Real property taxes are collected by numerous cities and counties to ensure they have enough money to cover their daily operating costs. The county assessor is the person who determines the exact amount each residence must pay for the real property taxes associated with their property. Then, the county collector ensures these taxes are collected. Higher tax rates are associated with more valuable property.
A tax assessment occurs when the Income Tax Department fully analyzes the validity established by the return of income. This entire examination process is considered to be the tax assessment. Under section 144, assessment can also be in reference to a re-assessment or best judgment determination.
Property taxes represent the money you pay according to the assessed market value of your combined property and the property tax rate as well. On the other hand, the tax assessment is the professional evaluation of your property that is completed by either a city or county assessor to officially determine the most up to date market value of the property.
These property taxes are calculated based on the number you get from multiplying the current assessed value of your property by the mill rate. To get the assessed value, you must multiply the market value by the assessment rate.
3. Proposition 13 and Exemptions
Proposition 13 limits the amount of property tax that can be administered in the state of California. In the year 1978, voters in California approved this law. The law limits the amount of money that can be requested for general property taxes to only 1% of the market value of the property in question.
Following the guidelines set forth by Proposition 13 means any transfer of property will cause a reassessment of the property to occur. There are certain situations where exemptions can be made regarding this reassessment.
This authorize the property to be transferred between spouses or their children without a reassessment having to occur.
This states that homeowners can transfer the current taxes placed on their property under Proposition 13 if at least one of the homeowners is 55 years old or older, the replacement property is bought within two years of the original property sale, the new home being purchased is of equal or lesser value than the current property. If within the first year of purchasing the old home the new home is closed, the price of the property can see a 5% increase. On the other hand, if within the second year of purchasing the old home the new home is closed, the price of the property can see a 10% increase in comparison the other selling price of the old home.
For personal residences, homeowners can deduct the following classifications from their annual income taxes: mortgage loan interest, property taxes, and prepayment penalties. Additionally, the person selling the home is eligible to exclude up to $250,000 of any capital gain they receive on the sale of their property. This value is bumped up to $500,000 if the sellers are joined in a legal marriage. The sellers just have to make sure they lived in the home for two out of the last five years to officially qualify for this exemption. Unfortunately, if the seller loses any money through the sale they can’t deduct that from their income taxes.
If people choose to invest in income-producing property, they can deduct all of the follow items from their taxes: mortgage loan interest, property taxes, prepayment penalties, operating expenses, depreciation of improvements. Additionally, a depreciating property must have an even time allocation to represent the depreciation most accurately. This is 27.5 years for apartments and rented homes, and 39 years for commercial buildings. There are numerous facts and specifications that every buyer should make sure they fully understand before making a purchase on a home. Given income taxes play a major role in the homebuying process, every buyer should know what kinds of taxes they will have to pay for their new property once they officially close on the homes.
Within the state of California, the property taxes are dealt with by the local governments within each specific county. Each county has its own individual tax rates that residents must pay which is decided upon based on a certain percentage of your property’s value. Usually, the local government use these property taxes to fund various county functions. This can include services to local schools and infrastructures throughout the community. The payment for a property tax occurs two times a year, using a fiscal year as the official reference.
This occurs from July 1st through December 31st (standard loans require a 2-month addition).
July 1st: This date marks the beginning of the fiscal year.
October: The tax bills are mailed during the last week of October.
November 1st: First payment installation is due.
December 10th: If the first payment hasn’t been received by this date, it’s considered delinquent.
This occurs from January 1st through June 30th (government loans require a 4 month addition).
February 1st: The second payment installation is due.
March 1st: The marks the official assessment date.
April 10: If the second payment hasn’t been received, it’s considered delinquent.
A supplemental tax is administered on top of the original property tax when the ownership of a property changes hands. The County Assessor appraised the full cash value of the property that’s changing ownership. The supplemental tax and property tax are both determined by assessments that are made based on the market value of the property. This supplemental assessment can determine if there needs to be an increase or decreased in the previously assessed property tax value before the new homebuyer acquires ownership of the property. The new homeowner is responsible for paying the supplemental tax bill that is sent to the recorded mailing address. Once the new homeowner makes the payment, they will provide official proof of this to the lender.
|Joint Claim (Married)
|Tax for Capital Gain
|Surtax NIIT** (Section 1411)
|Tax Rate (Combined)
|$0 to $39,375
|$0 to $78,750
|$39,376 to $200,000
|$78,751 to $250,000
|$200,001 to $434,550
|$250,001 to $488,850
** Only for net investment income does the 3.8% NITT Surtax apply.
Each individual county located in California has its own set of costs concerning escrow, titles, and the transfer of official documents. All of these categories require specific levels of payment that the buyer or seller pays depending on the county.
These charges are either completely paid by the buyer, completely paid by the seller, or split evenly between the two parties.
Similar to the escrow charges, these fees are either completely paid by the buyer, completely paid by the seller, or split evenly between the two parties. Sometimes, the buyer will pay this money directly to the bank or institution that is lending them the money for them to purchase the home.