Often you will hear real estate agents say a home is “in escrow.” What does that mean? Is escrow a place? Is escrow even needed? Today we are going to find out all the answers! Escrow is a term used to describe the act of placing something valuable in a trust with a 3rd party while conditions to an agreement are satisfied.
What is Escrow?
Definition: Escrow occurs when something of value is placed into a neutral 3rd party trust while conditions for an agreement are satisfied. Escrow generally refers to money held on behalf of two or more transacting parties.
Example: Escrow is commonly used in the transfer of high-value assets like a website, business, and most widely – the transfer of property.
Real Estate Escrow
In the case of real estate escrow; escrow opens when a signed agreement is delivered to an escrow company, which helps to ensure that the conditions of the property transfer are met. These conditions can range by transaction but traditionally are things like inspections, disclosures or contingencies.
After all the conditions are met escrow closes and the property ownership transfers to the buyer and the funds to the seller.
When Does Escrow Start?
When you as an agent or you as a client accepts an offer deposit money is then sent to an escrow company. This starts the escrow process. It is held there while the buyer and seller do their prep work to arrange the sale.
What Happens During Escrow?
During escrow, the escrow company will oversee everything and make sure that the transaction is handled correctly. Escrow typically lasts 30 to 45 days, sometimes longer if there is a complicated loan involved.
For a buyer and their agent its at this time they must secure the funds of the loan. It is the buyer’s responsibility to arrange financing and finalize the loan.
For a seller and their agent it’s at this time they must fill out any disclosure paperwork. The seller is required to disclose everything they know about the property. In a disclosure report, the paperwork covers a variety of property related topics, with perhaps the most essential part – the hazards report. This report discloses any natural hazards that may be located on the property.
After the seller prepares those disclosures, they must get them to the buyer. It’s at that point, the buyer reviews all of the disclosures.
The last step before escrow can end is to complete any home inspections. The buyer typically is going to do a variety of inspections. In some cases, depending on the loan, some inspections are more thorough than others. The point of the inspections is to make sure the buyer is getting exactly what is promised. Hopefully, the inspections go well, if not additional ones may be required or a new agreement between parties may be made.
When Does Escrow End?
After all the paperwork, inspections, disclosures, and funds are secured, escrow closes. Once escrow closes, the property ownership transfers to the buyer and the funds to the seller, ending the transaction.