Many people have heard of escrow, but do not know what it is. The reason for that is quite simple actually; it has several different meanings in estate transactions (i.e. buy/sell houses).
Escrow is something of high value such as a check, document, or precious artifact that is/are given to an impartial third party to keep until the conditions specified before the transaction is done are met.
Whenever the conditions are done and everybody is paid, the escrow will close and the valued item will be returned to the person who owned it initially.
Examples of Escrow:
- When someone makes an offer on his new home, he/she writes a money check and uses it as an escrow. This means that it was given to an impartial third party while the purchase contract is still under negotiation. Real estate agents most often take care of creating and controlling the escrows.
- The lender wants to create an escrow, where money for taxes and home insurance will be placed. Lender will have a department that will handle this kind of escrow.
- There are also escrow officers, people who get paid to create and control escrows between two parties. They must be impartial.
Who Is the Third Party?
Who will be your escrow creator depends on the place where you live. It could be escrow agent, attorney, title agent, or even estate agent. They will take care of all the paperwork being thrown at you, arrange meetings, give instructions, disclose funds, and make sure the completion of transaction. Note that this person or group MUST be impartial, otherwise it will be regarded as illegal.
Funds Being Withheld
In some rare cases, the funds will continue to be held in the third party when the ownership gets transferred from the previous owner to the buyer. This usually happens if the agreement or part of it was not met or changes in the agreement have taken place where both parties have agreed.
Examples could be the buyer allowing the seller’s family to stay in the house for an additional week while the seller is paying a daily rate to the house. Another example is if something wrong was found within the house and repair takes place, the cost of the repair is reimbursed by the funds in the escrow.
When both parties have agreed about the transaction -move in date, cost and ownership-, have filled all the paperwork, and all the funds have been transferred, the closing agent will disburse all funds and will oversee the document record within the county where the house/estate is located.
When the final step is taken, the deed is filed. That signals that the property has been transferred to the new owner. The deal is complete and escrow is finished. Both the seller and the buyer will receive final statements and documents by mail. Both of them must check the statements in case an error has gone unnoticed. If not, they must file the statement for tax purposes in their next income tax return.
Escrows are very useful in estate marketing because they make sure that no error has taken place during the transaction, both parties have agreed on buying/selling the property, and the required documents have been signed and met by them.