Enter Escrow
What happens during the time period known as “escrow,” between signing the purchase contract and finalizing sale on your home? This is the final part in completing the sales transaction. During this part, all the paperwork and all parts of the contract are completed.
When buyer makes an offer, they will need to deposit an earnest money check. Once your agent receives your check or any escrow money, she must immediately turn the funds over to her broker. The broker must deposit these funds by the end of the business day following their receipt by the broker. If the funds are in the form of a check in connection with an offer to buy or lease real estate, then the broker may hold the check until the offer is accepted. If the offer is not accepted, the check is returned to the would-be buyer.
This check will will be placed in “escrow.” That means it isn’t going directly to the seller but is being held by the broker’s escrow account until you and the seller negotiate a contract and close the deal. You can’t touch it and the seller can’t touch it. It’s in escrow.
The escrow account must be used exclusively for escrow purposes. The broker may not commingle these monies with the broker’s business or personal funds; nor may the broker misappropriate money that should be held in escrow with the broker’s business or personal funds. However, the broker is permitted to deposit personal money into the escrow account to cover service charges assessed by the banking institution on the account.
If escrow money is expected to be held for more than six months, the broker is encouraged to deposit the funds into an interest-bearing account. The interest follows the principal amount of the escrow funds, unless the parties state otherwise in the agreement.
The broker’s duty to escrow cannot be waived or altered by agreement between the parties to the transaction. That’s important because it protects both you and the seller.
When you are talking with your mortgage lender, you’ll hear about escrow again. They might talk about an “escrow” or “impound” account or “reserves.” They may use these terms interchangeably, and that’s OK because they all mean the same thing. They are funds held by the lender to make payments for your homeowners insurance and property taxes. Lenders will collect them monthly along with your loan payment and then pay the tax and insurance bills when they are due. That’s because your lender has a vested interest in making sure those payments are made. You may hear the term “prepaids” as well. That’s money collected in advance for those bills to ensure they’ve got enough on hand to pay them when they are due.
To reiterate, you enter in escrow when both you and the buyer sign the sales agreement. There are more parties get involved in the process on top of your agent, her agent, buyer’s agent and buyer’s employing broker. You will need to chose an escrow or title agent to act as intermediary in making the deal happen. Please see below for all parties who get involved in the escrow:
- The escrow agent, title agent, or lawyer will start ordering or preparing title reports, preparing the property deed, and more
- The buyer’s lender will begin in-depth review and processing of the loan and order a professional appraisal of your home
- The buyer will (depending on what contingencies were in your contract) arrange for pest and general inspections and homeowners’ insurance, plus work on meeting any other contingencies.
Your most important duty will be to be available for home inspections and appraisals, preparing disclosure forms if you haven’t already done so.
There might be other kind of forms required locally such as a smoke detector certificate. You also will need to be ready solve any contingencies you agreed in your contract, within the promised time frame.
To summarize, you are now one step closer to sell your home. This is the exact time for you to be available and responsive when issues arise. For example, if the title search turns up a lien on your property placed by a contractor who claims you didn’t pay the bill, you’ll need to pay up or otherwise deal with this to clear the property’s title. Another example is, if the inspection finds that your house doesn’t have enough smoke detectors, and providing these is the seller’s obligation in your area, you’ll have to buy and put in additional ones.
Your agent and escrow agents will keep in close touch with you during this time to make sure you stay on track.
