Making a very large purchase, such as a house, causes buyers, sellers and lenders to seek reassurance about all the security measures that are in place to protect the funds involved in the closing transaction. Transferring large sums of money and finalizing the details of your sale needs to be done safely and in compliance with the latest security and privacy standards. To help minimize risks during real estate transactions, the escrow/settlement process was developed to protect the buyer, seller and lender.
An escrow account is basically a temporary pass through account held by the escrow holder. The escrow holder is a neutral third party that holds funds and related documents in a secure manner while the parties work through the details of the real estate transaction. Escrow ensures the conditions of the real estate transaction have been met before the property and/or money change hands.
The escrow process starts when a party to a real estate transaction (seller, seller’s agent, buyer or buyer’s agent) opens the escrow after a written sale agreement is reached. Upon opening, the escrow holder should be provided with the terms of the sale and the information necessary to carry out tasks. The escrow holder’s duties and the timing of key tasks vary between states. While your real estate transaction is in escrow, your escrow officer and agent will work with you to make sure the right steps are taken at the right time.
When all instructions in escrow have been carried out to the satisfaction of each party, the escrow is ready to be closed. With closing, the title to the property is transferred to the buyer, the sales proceeds are paid over to the seller, necessary documents are recorded and title insurance is issued. It is important to note that the escrow holder does not offer legal advice, negotiate the transaction or offer investment advice.
What Is Escrow?Think of escrow as your middleman or the neutral zone between two parties during real estate transactions. An escrow company can hold deeds, bonds, money, or even a piece of property on behalf of the original owner and then release it once all obligations have been met by both parties. By hiring an escrow company, the buyer is required to put up the funds or whatever is being offered from his/her end, but the seller does not receive that money or property until the agreed-upon conditions have been met.
How It Works?In practice, escrow services aim to protect the interests of all parties involved in a particular real estate transaction. From the buyer's side, having an escrow account guarantees that you will actually get what you pay for and to ensure that the terms and conditions of the transaction are adhered to. Escrow agents are tasked with holding all critical documents and deposits and guiding the involved parties through working out details. An escrow agent is a neutral third-party who can facilitate communication and finalize even the most difficult transactions. Escrow agents are also trained to manage the paperwork required to make the transaction legitimate and final. Following the closing of a real estate deal, an escrow officer will oversee that all documents required to close a transaction are provided for proper recordation.
What Does An Escrow Agent Do?Some of the biggest tasks an escrow holder will compete on behlaf of the parties are: Coordinating communications between all parties in the transaction Preparing written escrow instructions Requesting a preliminary report or commitment Requesting a statement of identity (information) from the buyer or seller as needed Ordering demands or beneficiary statements Receiving bills from home warranty companies, as well as pest, roof, home and other inspection companies Preparing or securing the deed or other recordable documents Complying with lender’s requirements Prorating taxes, interest, insurance and rents Receiving purchase funds required for closing Coordinating recording of deeds and any other necessary documents Closing escrow when all the instructions of the buyer, seller and lender have been carried out Disbursing funds as authorized, including charges for title insurance, recording fees, real estate commissions and loan payoffs Preparing final statements for the parties, which account for the disposition of all funds deposited in escrow
What Are My Benefits?When all the terms and conditions have been met, the escrow agent will disburse the funds to the seller and the property deed or asset title to the buyer. To make the transaction official, the escrow agent will also record the paperwork with the county and state so that the new property ownership is recognized by governing bodies. Both parties will also get their copy of an estimated final closing statement. Once received, make sure to check the contents of the statement for its accuracy. If any errors are identified, contact the closing agent immediately. If no errors are found, safely store the statement along with other vital paperwork. Knowing an experienced Real Estate agent and Escrow Officer are essential to the process of a fluid execution of your transaction.