Don’t let the term escrow scare you when buying a home
If you are purchasing a home, at some point you will find yourself in escrow. It’s a scary word for most people, even during the home buying process. So today, we are going to simplify escrow so it’s easy to understand and give you the rundown of what to expect when your escrow days arrive.
First of all, escrow is simply a document or funds kept by a third party, only to be released when specific conditions have been fulfilled. Essentially, your house and your money are in a type of limbo designed to protect sellers, buyers and lenders alike.
Escrow and buyer offers
When you choose to put an offer in on a home to purchase, you are asked to write an earnest money check that is put in “escrow” essentially bypassing the seller. The money is held by an impartial third party while negotiations ensue. Neither party can access the funds while they are held in escrow. This step is important because it protects both parties while allowing you to commit as being a serious buyer. If your money went directly to the seller and for one reason or another you couldn’t find common ground in the negotiations, it would be very problematic as the seller could hold your money as collateral. In the same way, a seller wouldn’t
want to hand over the deed to a property without having been paid for it. Escrow ensures everyone gets what they are due at the same time during the closing process.
Lenders and escrow
Mortgage lenders have a vested interest in escrow as well. You will hear about escrow in several ways, sometimes as “escrow” but other times it is called “reserves,” “prepaids,” or an “impound account”. The terms may be used simultaneously, but they all mean the same thing. Escrow funds are held by your lender to make payments throughout the year for homeowners insurance and property taxes. These funds are first taken up front to pay in advance for the first year you own your home, and then again monthly in advance for the upcoming year to insure there are funds available when they are due.
Closing and escrow
As your home closing is completed, your escrow also closes. A specific escrow officer will oversee the final paperwork and exchange the funds and deeds. Typically an attorney, this officer will ensure all monies and documents are property distributed and all parties requests are satisfied.
Special escrow circumstances
There are a select number of times that funds remain in escrow, even after closing. For example, if a property has an issue during the final walkthrough, funds may be held if the seller has agreed to make repairs after closing. The agreed upon funds can be held in escrow until the work is completed. Another example would be after ownership is transferred but the buyers agree to allow the seller’s family to stay in the house for an extra week until their home is ready - they would sign a “rent-back” agreement requiring the seller to pay a daily rate for the stay. In the event of this circumstance, your agent will likely advise you to hold back a part of the seller’s profit until they have vacated the home.
Maureen Hughes is the Lead Listing Specialist of The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. For buyer or seller representation, or for more perspective on the local and national real estate market, please email firstname.lastname@example.org and visit The Wayne Megill Team site at http://www. waynemegillteam.com.