If you are in the process of purchasing a home, you have likely heard the term “escrow” frequently. But what does it precisely mean? Escrow is, in brief, a holding period during which essential documents pertaining to real estate transactions are exchanged. Here is all the information you need about escrow, including its purpose and operation.
Why is Escrow in Existence?
Escrow protects both buyers and vendors during the home-buying process. Escrow protects buyers from having to pass over their hard-earned cash to a seller before the transaction is finalized. And for sellers, escrow eliminates the need to wait for a buyer to secure financing prior to receiving payment for their residence. Escrow provides security for both participants to a transaction.
How Does Escrow Function?
After locating a home you wish to purchase and negotiating a price with the seller, you must establish an escrow account. This account will be used to retain any earnest money deposits (more on this later) and any additional fees or taxes associated with the property sale. Once everything has been finalized and all paperwork has been signed, the escrow account funds will be released to the vendor, and the transaction will be complete.
It is crucial to note that buyers and sellers typically have separate escrow accounts; however, they may choose to use a joint account instead in certain circumstances. Your real estate agent or closing attorney can assist you in determining the optimal course of action.
What Are Earnest Funds?
In addition to paying your agent and other professional fees associated with purchasing a home, you will be required to pay “earnest money” once the vendor accepts your offer. This deposit demonstrates your intent to purchase the property and typically ranges from 1% to 5% of the total purchase price.
In the majority of instances, your earnest money deposit will be held in an escrow account until closing; however, in some cases, it may be paid directly to the vendor when your offer is accepted. Again, your real estate agent or closing attorney can inform you about local customs.
Contact Us To Learn More
Now that you understand what escrow is and how it operates, you can rest assured that your interests will be safeguarded throughout the entirety of the home-buying process, from offer acceptance to closing. Remember that escrow is there to protect both buyers and sellers during one of the most significant financial transactions of a lifetime, even if it may seem like just another step in an already lengthy and convoluted process. Contact us for more information on our escrow services.
