You probably aren’t buying houses everyday, so understanding exactly how an escrow works can cause confusion.
The word escrow can be used in a variety of ways. There are several ways in which an escrow can work, so let’s took a look at the ways the word escrow can be used in a real estate transaction.
The Usage of Escrow
The word escrow is normally related to how a third party handles money holdings. When you make a deposit on a home, you normally make a down payment known as a “good faith deposit” to show the sellers you are serious. That check is placed in escrow, which means that the check was given to a third party while terms on the new home were negotiated. Real estate agents often handle the creation of escrows. You may have else heard your lender talk about an escrow account, which is where the money for homeowner’s insurance and property taxes will be held. While the term can be used in a variety of ways, the most important thing to remember is the role a third party plays in holding onto the funds.
There are normally clauses in an agreement where funds can be still held in escrow even after a home changes hands. In newer homes, funds will generally be held back until any unfinished work is completed. This protects the buyer when the seller states they will fix something but don’t come through. Also, there may be certain circumstances where a seller may need to hold onto their home for an additional period of time (finishing school years, job transfers, etc.), so an escrow agent can hold back a specified amount of the seller’s proceeds to cover such agreements.
Closing of Escrows
When a seller and buyer have signed all the necessary paperwork and the funds are available, the agent who is responsible for closing the deal will handout the funds and oversee recorded documents. The escrow will be closed when the deed is filed and the property is transferred. You will receive your final closing statements in the mail, so make sure there are no errors when you receive the statements.
The escrow process may seem overwhelming, but the right settlement service can walk you through the process.
Real Estate Settlement Services from Colony Title Associates
Colony Title has been in business since 1995 and handles more than 2,000 real estate closings per year. If you have any questions or would like to speak to a representative about closing, please give us a call at 410-884-1160 or visit our website for more information.