Don’t let the term es­crow scare you when buy­ing a home

Daily Local News (West Chester, PA) - - BUSINESS - Mau­reen Hughes On Real Es­tate

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 mau­reen­hughes@kw.com and visit The Wayne Megill Team site at http://www. wayne­megill­team.com.

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