What Is Escrow and How does it Work
In the real estate business, by definition, escrow is a secure holding area where important items (like the checks and contracts) are kept safe until the deal is closed and the documents officially change hands. This is a separate entity from the buyer and seller.
How Escrow works
The escrow officer is a third party, typically someone an attorney, someone from the closing company or a title company. The third party is there to make sure everything during the closing proceeds smoothly, including the transfers of money and documents. Escrow protects all the relevant parties by ensuring that no funds and property change hands until all conditions in the agreement have been met.
Along the way, proper documentation is filed with the escrow officer as each step toward closing is completed. Contingencies that might be part of the process could include financing, home inspection repairs and other tasks that need to be accomplished by the buyer or seller. And every time one of those steps is completed, the buyer or seller signs off with a contingency release form; then the transaction moves on to the next step (and one step closer to closing).
The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same: the Closing or Settlement Statement.
Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until all of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principles. Other professionals within the Real Estate business can suggest options but it is the principles that decide who is the escrow holder. Laws prohibit the payment of referral fees and this helps the consumer receive the best possible escrow services without any compromise caused by a person receiving a referral fee.
Remember that the escrow holder is not there to tell you if you made a good deal or not, their purpose is to be a safe place to send contracts, money, etc involved in the deal and to make sure they don’t change hands until all the conditions within the contracts have been met.
You should talk with your Real Estate Attorney as you enter into agreements to ensure that you are legally protected and are complying with the laws of your area when signing a contract. The escrow holder is the safe place all parties (buyer, seller, lenders etc) to send documents and know that they will be kept safe and don’t change hands until all the conditions within the contracts have been met.