Real Estate Basics: What Is Escrow?
When real estate agents talk about “Escrow” what we’re really referring to is the escrow period in a real estate transaction – the period of time between having an offer accepted and the closing or finalizing of the sale. During this time, a title company (a neutral third party) holds funds, deeds, and other documents until specific conditions have been met. This scenario is most common when a buyer is getting a mortgage loan, since cash purchases and other types of financing may be treated differently.
Once a buyer’s offer is accepted, escrow begins. The buyer’s earnest money and sale agreement are delivered to the title company who hold the funds and open a file to keep track of all paperwork during the transaction.
The escrow period allows time for several things to happen before the sale is finalized, such as:
- The buyer to inspect the property and negotiate for repairs if needed.
- The seller to move out of the house.
- The lender to underwrite the loan. This includes checking buyers’ credit, employment, and funds, as well as confirming via an appraisal that the property is worth the sale price.
- The title company to research and confirm that the property is free of liens or any ownership disputes so they can prepare the title in the name of the new owner.
During this time your agent would be in communication with the other agent, the loan officer, and the title company, making sure conditions are met on time for a successful transaction.
After buyers inspections and the lender’s appraisal have both been completed, the buyer receives and accepts the Closing Disclosure, which outlines all the details of the loan and closing costs, while the title company prepares the documents to transfer the title of the house. The lender sends the final loan documents to the title company and signing appointments for both the buyer and seller are scheduled. Do some wrist exercise to prep for this! This final signing of documents initiates the transfer of ownership, but the sale still hasn’t closed yet.
When all the loan documents are signed, the escrow officer sends them back to the lender, and once the lender is satisfied that all documents have been signed and loan conditions have been met, they disburse the loan funds. The title company then sends the title transfer documents to the county for recording. When the county has recorded the transfer, the sale is considered closed, and the buyer gets the keys!
Keep in mind this is just an example escrow scenario and situations may vary, but a good agent will be able to navigate any twists and turns with you for a smooth transaction.