What Does The Term “Escrow” Mean In Real Estate?

There is a list of confusing terms you will hear in the process of buying a house. At the top of that is the word “Escrow”. It plays a major role in real estate transactions. People have difficulty in completely understanding the concept, some home buyers pay for the escrow without even knowing why. By understanding the concept of “Escrow”, it will minimize the risk and help you move forward more confidently. Read on and find out all you need to know about Escrow.

Escrow is a term referring to a neutral third party employed to deal with land purchases, money exchange, and other related documents. Escrow's idea is primarily to secure all parties during the home buying process; buyer and seller. Any asset, in most cases its money which is held by a third entity on the behalf of the two parties during the real estate transaction

After a mutual agreement or offer by both parties has been made, Escrow comes into play. The new homeowner deposits money as down payments in the Escrow accounts after the property is acquired, while the seller uses the money as a way of paying mortgage and insurance payments.

Escrow works in a very simple way. The Escrow procedure begins when you have decided to buy a certain property and have made a bid. We will break down the process in a few steps:

• Escrow Account: An Escrow account is intended to open when the sale price and other contingencies have been negotiated by the buyers and sellers of the land. For an Escrow account, there is no fixed period of time. It can be opened for a long time or only a few days, which is highly dependent on the transaction's complexity.
• Earnest Money Deposit: The purchaser pays a lump sum amount called "Earnest Money Deposit" into the Escrow account as evidence that you are serious about buying the house. Instead of paying this directly to the seller, you pay this amount in the Escrow account, which can be risky since they might consider better offers in the meantime.
• Documentation: All parties will sign a formal agreement on the terms and conditions. The contract includes the price of the land, the terms of the agreement, any problems involved, any custody arrangements, and related paperwork. This move ensures that no liens against the property are imposed. The creditor will seize your assets if any liens are not satisfied.
• Closing of Escrow: The closure of the escrow ensures that all parties are pleased with all the terms and that all the paperwork is complete. This is when you prepare the closing sentence. Both the closing papers, along with money and the paperwork, are delivered to the buyer and seller. The buyer gets the keys to the property after closing, and the check is obtained by the seller. The Escrow price ranges from 1% to 3% of the purchase price. Both of Escrow's funds will remain in the account until closing. The funds are not available to both the buyer and the seller during the escrow era. If the transaction falls through, the escrow funds are returned to the buyer.

Escrow is organized by an officer or agent from Escrow. They are the impartial third party who, before the termination, retains the funds. They are responsible for the transfer of all loan documentation and property tax documents and for working for the lender to ensure that there is no lien on the property. It's usually the seller who selects the agent for Escrow. The role of the buyer is only to provide the money. But you have the right to select your own agent to be as knowledgeable as the other parties, as you are an essential member of the transaction.

The Escrow role is two-fold. It ensures that the buyer has all the requisite funds for the seller so that the money is transferred to the seller when the deal is closed. And it is also for the buyer's protection that they are not dealing with a dishonest seller who is going to cheat them. Escrow's aim is primarily to maintain trust between the two parties where they are not acquainted with each other and have a lot to lose.

Particularly for new home buyers, the home buying process can be very confusing. That's why understanding every move is crucial.