You Are In Escrow…Now What?
Wow! You have decided to either buy or sell a house and a lot of things need to happen once you have an accepted offer. One word you will hear a lot during the process is – escrow. If you’re a first time home buyer, you may have no idea what it means. Even if you have bought a home in the past, escrow may still be something you find confusing.
So, what is escrow?
To put it simply, escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a specific condition or event. It is an independent neutral account by which the interests of all parties to the transaction are protected. That “deposit of funds” in a real estate transaction, is usually a buyer’s earnest money deposit, which is written into the contract when an offer is placed on a home. The buyer’s check or wire is deposited in escrow while the terms of the deal are negotiated – neither the buyer nor the seller can access it.
Not so confusing after all, right?
How does escrow work?
Escrow protects all parties by making sure that all terms of the real estate agreement have been met before any money or property changes hands. As each step of the closing process is completed, paperwork and documents are filed with the escrow agent. This could include documentation that repairs have been made, reports from the home inspection, and paperwork regarding other tasks that were agreed to by both parties. As each contingency is released, the transaction moves forward to the next step.
How are both buyers and sellers protected?
Escrow protects buyers by making sure sellers don’t receive any money until all aspects of the deal have been satisfied, including needed repairs that were agreed upon. On the other side, escrow protects sellers in case buyers decide to back out of the deal without a legitimate reason. In this case, the sellers would be entitled to keep the earnest money check that comes from the buyers when the offer was made – typically, one to two percent of the purchase price – but in a HOT Seller’s market, it could be considerably more.
Who facilitates the escrow?
An escrow agent or officer is the person who manages an escrow account stemming from a real estate transaction. The agent can be a person from the closing company, a title company agent or even an attorney. Basically, the escrow agent acts like a gatekeeper, managing what comes in and goes out of the account. It is their job to make sure that all the instructions that were agreed upon between the buyer and seller are carried out.
What is “closing of escrow?”
The end of the process is called the “closing of escrow” – in essence it is when funds are delivered and property is conveyed. This happens when all of the conditions of the transaction are completed, the purchase of the home is finalized, and the money is properly disbursed. The escrow agent then clears or records the title, giving the buyers official ownership. Buyers and sellers will then receive a final closing statement in the mail. Are you getting ready to close a real estate transaction? Be sure to check over any documents you receive to make sure they are correct, and contact your agent if you see any errors.
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