Definition of Escrow
Escrow is a process that creates a smooth transfer of money and property for large purchases, especially real estate. It is also the word that refers to the account in which money is held while all sales paperwork is taken care of. It begins, or opens, when the buyer and seller sign a sales contract and/or receipt of deposit and guides the escrow process. It ensures that the sales process is handled fairly and that all documents and funds are in order before the property changes hands.
A neutral third party is required when depositing funds and documents into an escrow account. In this way, it is guaranteed that money will be made available at the same time as the property deed is update to reflect new ownership. This third party may be chosen by the seller or the buyer and only regional custom determines who chooses and who pays the costs of this person’s services.
An escrow officer or a title or escrow attorney makes up this third party agent.An escrow officer or attorney is a key part of this transaction and finding the right one is as important as finding the right real estate agent. The third party supervising escrow will collect a commission for his or her services, usually about 1 – 2% of the cost of the home. It’s a good idea to get referrals from friends or family who have sold or bought homes and to check services fees for different escrow agents.
The contract and escrow instructions generally contain requirements for home insurance, financing, flood insurance, home inspections, repairs and other tasks either the buyer or seller must complete before the transaction can move forward. Each time one of these requirements are met, the buyer or seller signs off with a contingency release form; this form is then forwarded to all parties involved, including the escrow officer.
A preliminary title is drawn up, pointing out any and all claims against the property. The title company will check a final time and produce a report to be sure existing claims have been removed and that no claims have been made since escrow was opened. There is only some paperwork to complete and sign before the property is sold.
Escrow is finally closed when a new deed is drawn up in the buyer’s name, the money is paid to the seller, and all other fees are closed and addressed.