What is escrow?
Escrow is a process that allows a neutral third party (the escrow company) to hold money and documents on behalf of the parties involved in a real estate transaction. These parties typically include the buyer, the seller, the lender, and the borrower. The escrow company’s agent is responsible for following all the instructions given by these parties and ensuring all the requirements described in the Residential Purchase Agreement and Joint Escrow Instructions are met before closing.
Why do I need an escrow?
Using an escrow provides security and peace of mind for your real estate transactions. When you have an escrow, you know that no money or property will change hands until all the purchasing conditions that all parties have agreed to have been met and all the instructions have been followed.
How does escrow work?
The buyer, seller, lender, and borrower will agree on escrow instructions and deliver them in writing to the escrow officer. Typically, the real estate agents will provide the information needed for this process, with input from their clients. Once the escrow officer has received the necessary instructions and documents, they will process the escrow. This may involve many different duties such as ensuring that the instructions from the parties are mutually compatible, paying bills as authorized, responding to authorized requests from the parties, and handling all funds and documents as instructed. Once all the instructions have been complied with, the escrow officer will close the escrow and deliver the funds and documents to the appropriate parties.
Who chooses the escrow agent?
The buyer, seller, and lender will choose the escrow agent together. Often, the agent is chosen at the recommendation of a real estate broker. However, there is no obligation to follow a broker’s advice. Escrow companies are independent. In order to avoid any possibility of partiality, they do not receive referral fees from brokers.
Who pays the escrow fees?
Many of the activities involved in closing escrow have fees associated with them. Examples include document transfer tax, recording of the grant deed, title insurance, inspection fees, notary fees, etc. These kinds of fees may be paid by either the seller or the buyer (or even the lender in some circumstances) depending on the traditions and practices in the local area and on the preferences of the involved parties. Typically, the buyer and the seller will split the escrow company’s fees fifty-fifty.