What Does COE Mean in Real Estate?

In real estate, navigating property transactions involves unfamiliar terminology. “Close of Escrow,” or COE, signifies the period after a buyer’s offer is accepted and before property ownership transfers. Understanding COE is important for both buyers and sellers.

What is Close of Escrow?

Close of Escrow refers to a legal arrangement where a neutral third party, an escrow agent, holds all funds and documents related to a real estate transaction. This arrangement begins once a purchase agreement is signed. Its purpose is to ensure all conditions stipulated in the purchase agreement are met before the sale finalizes, protecting both parties.

This phase involves due diligence activities and financial preparations. The escrow period typically lasts between 30 to 60 days, though this timeframe can vary. It concludes when all terms of the deal are fulfilled, allowing for the transfer of funds and property title.

Key Components of the Escrow Process

During the Close of Escrow period, several activities verify the property’s condition and secure financing.

Property Inspections

Professionals evaluate aspects like structural integrity, plumbing, electrical systems, and potential pest infestations. These inspections provide buyers with information about the property’s physical state, identifying issues that may require repair or negotiation.

Property Appraisal

This assesses the market value of the home. Lenders typically require an appraisal to ensure the property’s value supports the loan amount. An independent appraiser evaluates the property based on comparable sales and its characteristics.

Loan Underwriting and Approval

For buyers utilizing financing, the lender reviews the buyer’s financial documents, creditworthiness, and the property’s appraisal to grant final loan approval. The lender ensures all conditions for the mortgage are met before releasing funds.

Title Search and Title Insurance

These ensure clear ownership of the property. A title company researches public records to identify any defects that could affect the property’s title. Title insurance then protects both the buyer and the lender against financial losses from undiscovered title defects.

Roles of Parties in Escrow

Multiple parties contribute to the successful completion of a real estate transaction during escrow, each with distinct responsibilities.

Buyer

The buyer secures financing, provides financial documentation to their lender, and conducts due diligence like approving disclosures and arranging property inspections. The buyer typically makes an earnest money deposit, often 1% to 3% of the purchase price, into the escrow account.

Seller

The seller provides disclosures about the property’s condition, addresses any agreed-upon repairs, vacates the property by the specified date, and deposits the executed deed with the escrow holder.

Escrow Officer or Company

This neutral third party manages funds and documents throughout the transaction. They follow the instructions of both the buyer and seller, ensuring all conditions are met before disbursing funds or transferring the deed.

Lenders

Lenders provide financing for the buyer and ensure all loan conditions are satisfied. They work closely with the escrow company to coordinate the transfer of loan funds.

Real Estate Agents

Agents, representing both the buyer and seller, facilitate communication and advise their clients.

Managing the Escrow Period

Effectively managing the escrow period requires attention to timelines and communication. The duration of escrow typically ranges from 30 to 60 days, during which numerous deadlines must be met.

Contingencies are provisions within the purchase agreement that allow parties to terminate the contract without penalty if certain conditions are not met. Common contingencies include:

Financing: Protects the buyer if they cannot secure a mortgage.
Inspection: Allows the buyer to withdraw or renegotiate if significant property defects are found.
Appraisal: Ensures the property’s value meets the purchase price, safeguarding the buyer and lender.

Maintaining open communication among all parties—buyers, sellers, agents, lenders, and the escrow officer—is important for addressing issues promptly. Should issues or delays arise, such as problems with financing or inspection findings, prompt negotiation and resolution are necessary.

Closing the Escrow

The final stage of the real estate transaction, closing the escrow, involves several steps. This phase begins with the signing of final loan and ownership documents by both the buyer and seller. These documents include the deed, which legally transfers property ownership, and any mortgage agreements.

Following the signing, the transfer of funds occurs. The buyer provides the remaining funds for the purchase, including the down payment and closing costs, to the escrow agent. Closing costs, which typically range from 2% to 5% of the home value, cover various fees such as title insurance, recording fees, and lender charges. The lender then funds the loan, and the escrow agent disburses all monies to the appropriate parties.

The final legal step involves the recording of the deed with the county recorder’s office. This action updates public records to reflect the new ownership. Once the deed is recorded and all funds are disbursed, the escrow is officially closed, and the buyer receives the keys, taking possession of their new property.