What is Escrow?

An escrow is a neutral third party that hold holds the funds for the seller and buyer in a real estate transaction until both parties are satisfied. Real estate Escrow will involve the company to oversee a transaction from the initial deposit to the final funding of a transaction and make sure the entire process goes smoothly for the seller and buyer.

What Does an Escrow Do?

Escrow in a real estate transaction holds a great significance since it gives the peace of mind to both parties that no exchange or transfer of funds will happen until all conditions negotiated and written in the contract are met. The escrow company will take care of:

  • Documents such as the purchase agreement and any other documents until the transaction is closed
  • The escrow account that will hold all the money and documents involved in a real estate deal
  • Property title search to ensure the buyer will have full ownership upon closing the transaction
  • Transfer of title to the buyer, paperwork required for loan approval and issuance of payment to the seller, after all, conditions are met

Most banks and real estate agents will recommend their own escrow company or title company as the escrow holder. You can also use a real estate attorney as your escrow holder as long as both the buyer and seller agree upon it.

What is Escrow

Escrow Inspections and Appraisals

If you are a seller who is using escrow services, it is very important to make sure that your home is readily available for all appraisals and inspections. Preparation of statements and meeting any contingencies you agreed in your purchase agreement should be done in the allowed time period.

In case the buyer is using a lender to pay for the house, the lender will also require an appraisal in most cases. Once an inspection report is finalized, the buyer will usually ask for some time to decide whether to approve or disapprove the report. The buyer will also ask for necessary repairs and negotiate the house price based on the report. After an offer is made by the buyer, the seller can then choose to negotiate further by offering to pay for repairs or agreeing to a lower sale price.

Final Steps of Escrow

A final walk-through of the property is held which gives the buyer a chance to ensure that all conditions agreed previously have been met. The buyer checks all the repair work negotiated in the purchase agreement and if anything is not as agreed, the buyer can choose to delay the closing process or even ask to have the deal cancelled.

If everything is in accordance with the negotiated conditions, the escrow company issues the funds to the seller and handles the recording of documents and other necessary paperwork. Buyer and seller receive a closing statement from the escrow company usually by mail. It is recommended to check the statements carefully and report any errors found. These statements should be stored securely as they will be required to file income tax return in future.


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