What is Real Estate Escrow?

Escrow, in real estate, comes down to your house and your money being in limbo. Essentially, a third party holds and regulates payment of the funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.

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Escrows are very useful in the case of a transaction where a large amount money is involved and a certain number of obligations need to be fulfilled before a payment is released. While the payment is ‘In Escrow’ the transaction can be safely carried out without risk of losing money or merchandise due to fraud. This allows for secure transactions and confident buyers and sellers.


Why is Real Estate Escrow Important?

Escrow is important in real estate transactions because it ensures that a neutral third-party handles the documents and finances associated with the transaction. In that regard, it helps make the transaction safer by making sure that both the buyer and seller meet their obligations.

Escrow also ensures that finances are not exchanged between the buyer and seller personally, such that if one party fails to perform on his or her obligation, the other party does not automatically receive the money.


How does Real Estate Escrow Work?

Below is a standard escrow process:

Step 1: Buyer and seller agree to terms of the sale/purchase of real estate
Step 2: Either the buyer or the seller opens escrow
Step 3: Both parties send all contract documentation to escrow
Step 4: The buyer deposits his earnest money deposit into escrow
Step 5: The escrow agent keeps track of all pertinent dates as per the terms of the purchase contract
Step 6: Escrow agent holds all deposits or additional monies deposited in escrow to be disbursed at the end of escrow
Step 7: Escrow coordinates signing of final closing documents by both buyer and seller to transfer the deed of title into the seller’s name
Step 8: Escrow receives documentation from buyer’s lender and receives purchase funds from the lender
Step 9: Escrow disburses the money from buyer’s lender to seller’s account.


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