Escrow for a house – What should I know about this?
An escrow has more meanings. But the definition we should rely on when selling or buying a house is that an escrow is a contractual arrangement between buyer, seller and a third party that is not taking sides in the transaction that receives and disburses money and documents to the seller/buyer dependent on the agreed conditions of the transaction being met. The word comes from Old French where escroue, meant scroll of parchment or scrap of paper.
We know you are in a hurry to move into your dream house after you have searched the market for a long time and you might consider the escrow account just a waste of time. Same with the seller, you might also want the money in your pocket as soon as possible so why prolonging the process involving an escrow process. Dear buyer and seller the escrow was invented long time ago to protect both parties and as you know better safe than sorry.
If parties agree to such a transaction they both have protection but the transaction will take more time to complete. The process takes from 30 to 60 days. The lender also has protection if the real estate transaction includes the house in escrow.
You are In Escrow
The escrow process starts after the seller accepts the buyer’s offer. Escrow means money and documents have been deposited into an account until conditions of sales are scrutinized and complete. This entire process is coordinated by an escrow agent, the neutral third party with no vested interest in the house.
Thus the escrow account protects the seller by making sure that the buyer has the financial ability to pay the price of the real estate and on the other hand protects the buyer and ultimately the lender by proving that the seller is the legal owner of the house, holding a clear title with no claims or liens from other parties.
The escrow process is not the same in all states but the main steps are common across the US:
- The escrow officer assigns a number to the account and collects
- The sales contract
- The instructions related to sale, if the case. Such instructions may include home and flood insurances, contingency repairs the seller must make or home inspections the property must pass, or other steps the parties agreed to before the sale may close.
- The earnest money check from the buyer
- Then the buyer orders a title search and buys title insurance. This insurance will protect him/her against unexpected claims on the property.
- If the buyer signs the necessary documents, the lender transfers the borrower's loan money to the shared escrow account. Then the deed becomes recordable in the buyer's name. After all these escrow closes.
- Sometimes things do not go as smooth and the sale does not always close. What can happen is:
- The home appraisal is less than the desired amount the buyer wants to borrow;
- The buyer is not able to secure the house financing;
- The inspection process reveals a hidden defect in the house. The buyer is not willing to buy the house under this new circumstances.
- The repairs agreed by the seller are not complete before the scheduled closing day.
- If parties agreed to let the seller’s family stay in the house for another week/month until their new property is ready, it is possible to sign a “rent-back” agreement. Under this agreement the seller will pay you a rent for the length of their stay. The seller withdraws this lease money via the escrow agent coming directly from the seller’s proceeds if specified in the contract.
If you have extra questions regarding this process you Call Casey Moseman @ 702-271-1274. She’ll be more than happy to guide you on this topic. As well as any other topic related to purchasing a piece of real estate and borrowing money for this purpose.