Real Estate Transactions in Las Vegas
The Buying Process
Every country, state and city has different procedures when it comes how a real estate transaction is handled. Below is an overview of how the real estate purchase process is handled in the Las Vegas Valley.
- Obtain a loan preapproval from a major bank or provide proof of funds (bank statements) for an all cash sale to your real estate agent. This is required before submitting any offers on properties, and some sellers will not allow you to view their property without one.
- Identify potential properties that meet your needs and view them with your agent. Remember to give your agent as much advance notice as possible. Many properties require appointments to view, and if you can give at least a week's notice it is easier to make sure you get to see all properties on your list.
- Select property that you would like to make an offer on. Because there are multiple offers on many properties, especially those under $300k, it is wise to select several properties and not just one.
- Have your agent run comparable sales to determine an approximate value. If you are getting a loan, your lender will also require an official appraisal to be done on the property. If this is a cash sale, an appraisal is not required, but the buyer may pay for one and that can be a condition of the contract. We use the standard Greater Las Vegas Board of Realtors purchase contract which contains many provisions for the protection of both the buyers and the sellers. The only exception to using a standard GLVAR contract would be when purchasing a brand new property from a developer. In that case the purchase contract is supplied by the developer.
- The agent will write up a purchase contract including all terms of the sale. Terms of the sale will include the following items of importance, as well as other miscellaneous provisions:
a) Sales price you are offering to the seller.
b) Earnest deposit - Also known as the EMD, the earnest money deposit is up front money that must be presented along with the contract. Earnest deposit is typically between $2,000 to $10,000 for homes in the average price ranges, but may be as much as $100k or more for upscale properties. Earnest deposit checks are not cashed until all parties have executed a contract. Once all parties have agreed to the contract, the earnest money is deposited into the escrow company's account and is used as a credit towards the sales price.
c) Terms of payment for the property - new lender financing or all cash sale. This will include the total amount of the down payment the buyer will be making and the type of loan they will be getting (FHA, VA, Conventional), if applicable.
d) Who the closing company will be - in Nevada we use escrow companies that act as our neutral third party. They make sure all the terms relating to paperwork and transfer of funds are carried out according to the contract. Among other duties, the escrow officer: orders the title report to make sure that the new buyer is getting a clear title, orders payoff demands from the previous lender and the homeowner's association to make sure those liens are paid in full by the seller, reviews loan documents sent over by the buyer's new lender (if any), collects funds to close from the buyer, has both buyers and sellers sign all documents relating to the sale and notarizes signatures.
e) Date of closing, also known as COE or close of escrow - in Nevada, buyers and sellers will sign documents and bring in funds a day or two before the property is recorded in the new buyer's name at the Clark County Recorder's office. Until the property is recorded at the Recorder's office, keys and access to the property are not granted to the buyer unless otherwise agreed upon in writing between buyer and seller.
f) Due diligence period - after a contract is accepted and executed (signed) by all parties, the buyer usually has a specified period of time to perform inspections, have an appraisal done, review Home Owner's Association (HOA) records, etc. This is called the buyer's due diligence period, and is typically ten days unless agreed upon otherwise in the contract. The seller is obligated to provide the Homeowner's Association Documents, and the buyer has five days to review those documents once delivered. Sometimes it is hard to obtain these documents from the HOA in a timely fashion. If so, the due diligence period will have to be extended to accommodate the buyer's 5 day review. Another issue that may extend the due diligence period is getting utilities turned on for the inspection. Again the due diligence period might have to be extended. During the due diligence period if the buyer is not satisfied with the HOA documents or inspections, or if the appraisal does not meet the purchase price and the seller refuses to lower that price, the buyer may give notice in writing to cancel the sale and receive the earnest deposit back. Both buyer and seller must sign the cancelation to release funds from the escrow company. It happens very infrequently, but should the seller refuse to sign or if the seller disputes the distribution of funds, the buyer may need to seek a court order to release those funds.
g) Inspections - all buyers are advised to have a professional home inspector go through the home on their behalf, even for brand new homes. If the buyer chooses to have someone other than a qualified professional do the inspection, the seller may not be obligated to perform repairs.
h) Home Warranties - it is customary to ask the seller to pay for a one year home warranty covering the major operating systems of the property including A/C, heating, plumbing, and built in appliances like stoves, dishwashers and hot water heaters. Additional coverage may be applied at extra cost for swimming pools and hot tubs. Home warranties are a "negotiable" item, however, and if the seller does not wish to pay for it, the buyer may elect to purchase their own policy.
i) Closing costs - our contracts are very comprehensive and define who will be paying for the specific closing costs associated with the transaction. Typically the buyer will pay for: one half of the escrow fee, HOA transfer fees, HOA capital contributions, appraisal, home inspections, real estate brokerage administration fee, homeowner's insurance policy and any lender associated fees including lender's title insurance, processing, discount points, loan origination and underwriting. In addition the escrow company will prorate taxes, HOA dues, sewer use fees, and insurance between buyers and sellers at the close of escrow. In some cases, the buyer may request that the seller pay for all or a portion of the buyer's normal closing costs, but that is usually reflected by an increase in the sales price. Typical seller's costs include: Commissions, one half of the escrow fee, title policy, Nevada real estate transfer tax, home warranties, covered repairs and real estate brokerage administration fees.
j) Personal property - according to our contracts, certain items must automatically stay with the property unless otherwise agreed upon in writing. These items would include: window coverings, light fixtures, ceiling fans, stoves, dishwashers, range hoods, built in microwaves, soft water systems, reverse osmosis systems, alarm systems, pool equipment, etc. Refrigerators, washers and dryers are all considered personal property and may be removed by the homeowner unless otherwise agreed to in writing in the purchase contract, or if already included in the property listing in the MLS.
- The buyer will sign the contract and the agent will submit it to the listing broker along with a copy of the earnest money deposit check or a notation that these funds will be wired directly to the escrow company within one business day.
- The seller then has three choices: they can accept the contract as written, they can reject the contract, or they can make a counter offer to the buyer.
- If the seller makes a counter offer, the buyer can accept it, reject it or make another counter offer to the seller. All offers and counter offers must be in writing. Verbal offers are not acceptable.
Due Diligence Period
- Once all parties have reached agreement in writing, the contract is considered accepted. The buyer's agent will submit all documents and the earnest deposit check to the escrow company and escrow will be opened. Once again, the earnest deposit will be cashed at this time and the funds will remain at the escrow company until the closing occurs.
- The buyer's lender will also immediately receive an executed copy of the contract so that they may start processing the loan.
- The lender should be instructed to order the appraisal immediately and collect funds for the appraisal from whoever is paying for it.
- The property inspection should also be set up immediately so that the results can be reviewed and accepted or rejected by the buyer during the due diligence period. Should there be items on the inspection list that the buyer wishes to have fixed by the seller, a separate form will be prepared itemizing those items. Keep in mind that Bank foreclosures and short sales are mostly sold "as is, where is" with no repairs to be made. Short sale sellers have no money, and Banks will very seldom pay for any inspection items unless a major issue is found like mold or a structural defect.
- HOA docs should be ordered immediately so that the buyer can review them in a timely fashion within the due diligence period.
- The buyer should also immediately contact their preferred homeowner's insurance company and order a homeowner's policy. The buyer will need to supply the property address, the property square footage and both the lender' and escrow company's contact information so that the insurance company can provide them with the necessary paperwork for closing.
- Once the items of the due diligence period have been covered and the due diligence period ends, the buyer's earnest deposit is considered non refundable unless the seller is unable to provide clear title to the property or the property is materially damaged in some way prior to the closing.
The Closing Process
- About three days prior to the closing, the buyer will have an opportunity to "walk through" the home once more to make sure that the property is still in the same condition as it was when the offer was tendered. Also if there were repairs that were to be made by the seller, the buyer would check to make sure that those repairs have been done. If the buyer is unable to be at the property for the walk through, the buyer may nominate someone else in writing to perform this walk through on the buyer's behalf. The real estate agent may be present during the walk through, but CANNOT do the walk through for the buyer. If the buyer or a buyer's nominee cannot do the walk through, the buyer will need to waive his rights to the walk through in writing.
- About three days before closing, the buyer will sign all the closing documents and lender documents, if applicable. The escrow company will have prepared an estimated HUD settlement statement outlining all fees being charged and this will be reviewed for accuracy by the buyer and the buyer's agent. The lender documents will be returned to the lender for review, and then the lender will wire mortgage funds to the escrow company. The buyer will deposit the remaining funds needed to close by WIRE TRANSFER only. Escrow companies will not accept cashier's checks as "good" funds. If a cashier's check is used, the escrow company will wait five to ten days for the check to clear. This will delay closing and may result in fees and penalties to the buyer.
- About three days before closing the buyer will call the utility companies to have the utilities turned on in their name at the close of escrow date.
- Once the property is officially recorded in the buyer's name at the Clark County Recorder's office, the buyer is obtains access to the property and keys from the seller. Prior to recording, no work may be done on the property by the buyer and no furnishings may be installed without prior written permission from the seller. (Bank owned properties never allow any kind of access prior to recording.)
- Recording a property on the specified closing date is not an exact science, though we do everything we can to accomplish this goal. Some of the most common delays are: the HOA does not return the demands to escrow on time, the seller does not sign off on the final HUD statement, the loan documents need to be resigned because of a clerical error, escrow is waiting on the lender funds, final repairs have not been made, or title needs to clear a lien. These are all items outside of the control of the buyer or the buyer's agent, and a sense of humor helps to get through the process.
For non US Citizens: the above process is the same for US and non US Citizens. One other item that foreign nationals need to be aware of when purchasing property in the United States: when you eventually sell the property, a certain percentage of any profit over the original sales price will be withheld at the closing to pay US federal taxes.
Taking title to property as an LLC or Corporation: it is possible to take title to a property in the name of a US registered Corporation or LLC if you are paying cash for a property, but the purchase contract must contain this information when it is presented to the seller. Most sellers will not sign a contract that allows an assignee to take over the contract. You must also provide your real estate agent with the appropriate documentation proving you are authorized to sign for that entity. Otherwise you will have to wait until after the transaction is closed and then transfer the property into the entity's name, at which time you would be subject to the applicable Nevada transfer tax for that change of title. If you are transferring title to a trust containing the names of the principals, transfer tax is not required.
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