If you’re new to the real estate world, chances are you’ve never heard the word “escrow” before, but once you’re ready for a property transaction, it seems you hear the word every day. You may even throw it around nonchalantly, like saying, “the money is in escrow,” or “shouldn’t escrow take care of that?” without truly knowing fully what it means. Truth is, you’re not alone. Because escrow has many forms and functions, it seems it is everywhere, but you can never nail it down. Unless you take the time to understand what escrow is, you may always feel just a little out of the loop and a little on edge that you’ll use it incorrectly. I’m here to give the word a little more clarity, and help you know what you’re talking about.
Simply put, escrow is an impartial third party account that takes care of your real estate transaction. With such a high dollar transaction and agents looking out for each of their own party’s best interests, it’s good to know money and documents are being handled by someone with no skin in the game. This account is handled either by a title or escrow company, or a company that handles both aspects. Likely, a single officer will be assigned to the account, and he will be the face of your escrow.
Once you and the seller have reached an agreeable contract, escrow opens. One of the agents will open it, but because it is an impartial third party, it doesn’t really matter who that is. Your earnest money deposit will go into the account as well as the title, deed, and contract. Your earnest money tells the seller that you are serious about the purchase of the home, but he cannot get to your money until all terms of the contract are met. The job of the escrow officer is to handle all important documents and monies from buyers, sellers, agents, lenders and any other interested party. They make sure conditions of the contract are met and that monies are disbursed appropriately. They make sure your title search is done, give all parties their instructions, and schedule closing on the home. Essentially, they are who everyone agrees to listen to. Because they have no stake in whether the transaction goes through or falls apart, they can make judgment calls and be in charge will very little concern of making anyone too upset.
When you sit down at the closing table, the wheels are in motion to begin to close escrow. There are some extenuating circumstances: sometimes lenders maintain escrow for the life of the loan, sometimes there are buyer and seller agreements not to close escrow until all parties are moved in or out on an agreed upon date, and sometimes escrow isn’t closed on new construction until all the work is finished. No matter what the situation, these terms will have been agreed upon by you and the seller long before you reached the closing table, and the escrow officer will just be making sure all terms are met. Once all terms are met, all money is disbursed to the appropriate parties, and you, the seller, and the escrow officer sign off on all documents, a final statement will be mailed to you. You will need that statement for your taxes, so make sure to keep it in a safe place.
I know that escrow has always been a little bit of a confusing idea for me. I knew they were a major part of the home buying process, but never really knew what it is that they did or what they handled. I hope the article provided a little clarity for you as well.