Investment Tips

What Does The Term “Escrow” Mean In Real Estate?

2 years 10 months ago I 0 minutes read I 149 Views

Renee Tulliani

<p style="text-align: justify;"><span style="font-size: 12pt;">There is a list of confusing terms you will hear in the process of buying a house. At the top of that is the word “Escrow”. It plays a major role in real estate transactions. People have difficulty in completely understanding the concept, some home buyers pay for the escrow without even knowing why. By understanding the concept of “Escrow”, it will minimize the risk and help you move forward more confidently. Read on and find out all you need to know about Escrow.</span></p>
<h2><span style="font-size: 14pt;">What is Escrow?</span></h2>
<p style="text-align: justify;"><span style="font-size: 12pt;"><a href="https://www.escrow.com/">Escrow </a>is a term that refers to a neutral third party that is hired to deal with the sale of land, the exchange of money, and all the related documents. The concept of Escrow is basically to protect both the parties; buyer and seller during the home buying process. Any asset, in most cases its money which is held by a third entity on the behalf of the two parties during the real estate transaction. Escrow comes into play after a shared understanding or offer has been made by both parties. After the property is bought, the new homeowner deposits money as down payments in the Escrow accounts while the seller uses that money as a means of paying mortgage and insurance payments.</span></p>
<h2><span style="font-size: 14pt;">How does it work?</span></h2>
<p style="text-align: justify;"><span style="font-size: 12pt;">Escrow acts in a very straight forward manner. When you have agreed to purchase certain property and have made an offer, the Escrow process starts. We will break down the process into a few steps:</span></p>
<h3><span style="font-size: 12pt;">Escrow Account:</span></h3>
<p style="text-align: justify;"><span style="font-size: 12pt;">An Escrow account is meant to open when the buyers and sellers of the property have agreed on the sale price and other contingencies. There is no set period of time for an Escrow account. It can be opened for a long time or just a few days, it highly depends on the complexity of the transaction.</span></p>
<h3><span style="font-size: 12pt;">Earnest Money Deposit:</span></h3>
<p style="text-align: justify;"><span style="font-size: 12pt;">A lump sum amount called “Earnest Money deposit” is transferred in the Escrow account by the buyer as proof that you are serious about purchasing that property. You pay this amount in the Escrow account instead of paying this directly to the seller, which can be risky because they might consider better deals in the meantime. </span></p>
<h3><span style="font-size: 12pt;">Documentation:</span></h3>
<p style="text-align: justify;"><span style="font-size: 12pt;">A written agreement of conditions is signed by both parties. The price of the property, the terms of the agreement, any required checks, any custody agreements, and related documentation are included in the agreement. This step ensures that there are no liens against the property. If any liens are not satisfied, the creditor can seize your property. </span></p>
<h3><span style="font-size: 12pt;">Closing of Escrow:</span></h3>
<p style="text-align: justify;"><span style="font-size: 12pt;">The closing of the escrow means, that all the conditions are met by both the parties and all the documentation is complete. This is when the closing statement is prepared. All the closing documents are delivered to the buyer and seller along with money and the paperwork. After closing, the buyer receives the keys to the property and the seller receives the check.</span></p>
<p style="text-align: justify;"><span style="font-size: 12pt;">The Escrow amount rages from 1% to 3% of the sale price. All the funds in Escrow remain in the account until the closing. During the escrow period, the funds are not accessible to both the buyer and the seller. The escrow funds are returned to the buyer if the deal falls through.</span></p>
<h2><span style="font-size: 14pt;">Escrow agents</span></h2>
<p style="text-align: justify;"><span style="font-size: 12pt;">Escrow is arranged by the Escrow officer or agent. They are the neutral third party that holds the funds until the closing. They are responsible for the transferring of all the loan documents and property tax documents as well as working for the lender to make sure the property doesn’t have any lien. Usually, it’s the seller who chooses the Escrow agent. The buyer’s job is to just supply the money. But as you are an important member of the transaction, you do have a right to choose your own agent to be as knowledgeable as the other parties.</span></p>
<h2><span style="font-size: 14pt;">Why do I need escrow?</span></h2>
<p style="text-align: justify;"><span style="font-size: 12pt;">The function of the Escrow is two-fold. It ensures a seller that the buyer has all the required funds so that when the deal is closed, the money is transferred to the seller. And it is also for the safety of the buyer that they are not dealing with a dishonest seller who will scam them. The purpose of escrow is to basically guarantee trust between both parties where they aren’t familiar with each other and have a lot to lose. </span></p>
<p style="text-align: justify;"><span style="font-size: 12pt;">The home buying process can be very confusing, especially for new home buyers. That’s why it’s imperative to know each and every step. If you are a new home buyer, you are on the right platform. Check out all the <a href="https://yourdealty.com/buy">property listings</a> and agent details at <a href="https://yourdealty.com/">Dealty</a>!</span></p>

Renee Tulliani

Contributer

Topics

Investment Tips

What Does The Term “Escrow” Mean In Real Estate?

Company

Locations

Services

Follow us

Eve

Topics

Investment Tips

What Does The Term “Escrow” Mean In Real Estate?

Related Blogs

Subscribe to Stay Connected

Company

Locations

Services

Follow us

Eve