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Escrow accounts are commonly used in real estate transactions. They act as a middleman between a seller and a buyer to protect and hold funds and important documents. The escrow officer in charge of the account must ensure that certain conditions are met before releasing the funds or documents from the account. When dealing in private property transactions, it's a good idea to use an escrow account.
Sale of Private Property
When a homeowner is ready to sell his property, he can use a real estate agent to list the home or try to sell the house alone. The agent deals with potential buyers for tours, negotiating sales prices and contracts. However, the agent gets a cut of the final sales price for her commission. If you're not using an agent, the situation is known as "for sale by owner." An escrow account can be established by you or the real estate agent to hold earnest money, down payments and important documents related to the property sale.
Importance of Escrow
The escrow account holds money and documents until they are cleared to be released to the proper individual or lender. The escrow officer in charge of your account ensures that all instructions are followed. This type of third-party monitoring provides protection for both the seller and the buyer during the purchase process. As a seller, you wouldn't want the buyer to obtain any paperwork, such as the deed, until you've received payment. Likewise, as a buyer, you wouldn't want the seller to have your deposit until he fixed the items on the inspection report.
To set up an escrow account, contact an escrow agency in your area. Title insurance agencies sometimes provide escrow services as well. If you're working with an agent, she generally takes care of setting up an escrow. The escrow company needs some important information about the sale to initiate the account. This includes seller and buyer names and addresses, property address, purchase price, deposit amount, mortgage lender information, title reports and the estimated closing date. The agent should be aware of any conditional or special terms of the sales contract. An escrow officer uses this information to open the account with a new account number. You'll need to use the account number when inquiring about your account.
Closing the Deal
Documents that are signed at closing will be held by the escrow account as well. Once the buyer signs the required paperwork, the deal is almost done. If there's financing involved, the lender needs to review the closing documents before funding the loan. Documents that need to be recorded, such as the deed or mortgage, must be taken to the county registrar's office to be filed on public record. After all the necessary documents are recorded, the escrow account is generally closed.
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