What is Escrow?
When a seller and buyer have agreed to and signed a real estate purchase agreement or contract, it is time to begin the escrow process, but what is escrow? Unless you are a professional in the real estate or financial arena there is seldom talk of escrow except for when you decide to purchase or sell a home. Escrow, as defined by the dictionary is ‘a bond, deed, or other document kept in the custody of a third party, taking effect when a specified condition has been fulfilled’. Simplified for the business of real estate, escrow is when a third party becomes responsible for ensuring that all agreed upon terms and instructions of a signed real estate purchase contract are completed and or followed before the lender releases the home purchase money and the deed is transferred to the new owner. The area of the United States that you are in will play a large part on who handles the escrow. Sometimes it is the closing attorney and other times it is an escrow agent or even the title company. Escrow is essentially a process and the protection of the fair transfer of property from the seller to the buyer. Everyone’s goal is the get from ‘For Sale’ to ‘Sold’ as smoothly as possible and with little to no issues. When a property is listed as ‘Pending’ it is going through and clearing the escrow process.
The third party guiding and ensuring the escrow process for the sale and purchase of a home works for both the lender/buyer and the seller. The process to complete all the stipulations of the real estate purchase agreement can be arduous. Both the buyer and seller will have their tasks to complete in order to process the escrow through to close. It is the responsibility of the third party to hold and guard all funds or documents in their possession until close and to distribute monies and convey the title to the new owner once all provisions have been met by both parties. Not only do they oversee but they also pay authorized bills and follow the principals (the buyer & the seller) instructions as well.
On average, typical closing costs are between 2 percent and 5 percent of the purchase price of the home. However, only a portion of this is part of your escrow. Based on the negotiations and the written contract many escrow payments are split between the buyer and seller based on what is deemed ‘their costs’ of the escrow fees. This amount generally totals to between 1 percent and 2 percent of the cost of the home. At or shortly after closing the escrow will close and a new deed in the name of the buyer is recorded in the escrow office and the seller will obtain their payment for the home. It is not unusual for some money to be held in escrow in order to pay contractors for work that has not yet been completed or invoiced.
Knowledge is always your best source for gaining the best outcome. Having a reputable agent on your side is highly recommended. If you are looking to purchase or sell a home and you are not currently working with a real estate agent, www.bidselect.com/FindAgent is a great source for trained professionals in your area.
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