Home Buyers Use Escrow to Safeguard the Financial Transaction

What is escrow? Escrow is an arrangement between two parties - such as a buyer and a seller - in which a third party will hold money or documents, then dispense them according to instructions on which both parties have agreed. What this means in simple terms is that a title company officer holds on to the payments and the deed to the property, until the conditions that the buyer and seller agreed on have been met. The escrow agent then delivers the funds to the seller, and the deed to the buyer. The escrow agent is also responsible for closing the escrow account, and giving both parties with a statement which details the terms of the closing. An escrow agent can be recommended by a broker, but the decision as to who is employed should be a mutual choice made by both the buyer and the seller.

Must I Use Escrow?

You are not required by law to use an escrow agent in real estate, but you will have a hard time finding a bank or lending institution that does not require escrow. This is due to the size of funds which is changing hands in the transaction plus it is a protection for your investment. Escrow acts as a protection against either party not honoring the terms of the transaction.

Escrow: Some Things to Keep in Mind

Once escrow actions begin, be sure to provide your photo identification and bring along the information on the home insurance you are purchasing. Closing normally occurs within 30 to 60 days, and the escrow account provides a guarantee that the money placed in it be paid out when all terms of the contract have been fulfilled.

The process of buying a home is time-consuming, and sometimes chaotic. You will be kept busy with many activities, such as getting homeowner's insurance and hiring a home inspector to evaluate the home. It is important that you keep in touch with your escrow agent. Return messages as soon as you can, and do not hesitate to contact your agent with any questions that arise. An escrow agent can only discuss escrow-related matters, but you need to know and understand all the information, in order to meet deadlines. Any obligations the seller has agreed to must be met, so you need to inform your agent if you are still not satisfied. Always read every document for accuracy, and let your agent know of any corrections that need be made, or of any updated information. As with all closing fees, escrow costs may fluctuate according to region and who is overseeing it.

Escrow is not restricted to real estate. Nearly any sort of valuable property may use escrow to ensure the transaction goes according to plan. Business sales can also use escrow accounts, as do expensive websites and occasionally the source code of popular software. Beware of escrow fraud, however. A number of online escrow agents are fraudulent, so make sure you are dealing with a real company. Find out the company's address and telephone number to make sure it is located in the United States. Call to talk to an actual agent, and question him about his experience. You may also want to check with the Better Business Bureau to make sure the escrow agent is a member.

If for any reason the original date of closing cannot be met, escrow can be canceled. Documentation from both parties must be shown attesting to the need to cancel, and a fee may occur for a return of the funds. However, assuming each party has fully met the list of terms prior to closing; escrow can now come full circle and be dispensed.

It is unlikely that escrow agents will hold onto files for a long time, so make sure you have copies of everything. You will need to produce the escrow documents to your tax preparer when you file taxes. Of course, when you purchase any property, you should always keep every document relating to the sale for your own records.

Escrow and closing proceedings can take a large amount of time, and can be slightly increased if there is an illness or other interruption. The primary goal is that buyers and sellers keep proceedings rolling in a timely manner. By staying informed, and making sure your needs as a buyer are satisfied, your escrow will soon turn to ownership.

Check out Affordable Real Estate for Sale in San Diego. For information about San Diego Communities, look at our California Community Guide blog.