Residential properties and commercial properties cost an arm and a leg that’s why it’s understandable that buyers often opt to skip getting an escrow account to avoid having to spend more money. While it’s true that an escrow can be a bit costly, it can actually save all parties involved in the transaction from property-related problems in the future. It’s also one way to protect parties from being ripped off.
How is this so? That question will be answered towards the end of the article. For now, let’s talk about:
What is an Escrow?
An escrow is a deposit of funds or a means by which one party secures the money intended to be given to the other party the moment an event, contract, or particular condition is completed. Think of it as giving your money to an authorized group of people who will secure it for you so you’ll have enough cash to settle the remaining items that need to be paid in the future.
Who Needs an Escrow?
People often think that an escrow is only for the buyer of the property, but that’s not the case. Whether you’re a borrower, lender, seller, or buyer of a property, you will need some sort of assurance that there will only be an exchange of properties, documents, and funds, if and only if ALL the instructions and conditions in the transaction are followed. The holder of the escrow is obliged to safeguard the money and the documents while they are in his or her possession. It is also their responsibility to ensure that all of the escrow provisions have been complied with before conveying the title of the property.
How Do Escrow Services Work?
The borrower, lender, seller, and buyer are the principals to the escrow. They write and agree upon instructions that will be stated in the escrow and will be turned over to the officer. Should a broker be involved in the process, he or she will be required to provide the escrow officer all the necessary details in preparing the escrow account, documents, and instructions. Once all the information and requirements are in, the escrow officer will start processing the escrow, in accordance with all of the instructions. When the conditions stated in the escrow are either achieved or met, the escrow will then be “closed”. It can be a little bit confusing since escrows follow a certain pattern. Similarities aside, there are parts where escrows differ from each other since it deals with different properties and transactions.
The duties and responsibilities of an escrow holder include the following:
making sure that the instructions given by the parties and pricipals to the transaction are followed within the agreed timeframe
management of documents and funds in accordance with the instructions written in the escrow
ensure that all bills are paid
respond to the authorized requests from parties and principals to the transaction
ensure that the terms are met before closing the escrow
provide an accounting report for both Closing and Settlement Statement
How is the Escrow Holder Chosen?
Choosing the escrow holder is something that principals have to agree upon. If the property transaction involves a real estate broker, he or she may throw in recommendations regarding the escrow holder. One thing that needs to be noted is that the escrow holder has to be someone competent and experienced when it comes to handling escrows. Another thing that should be noted is that referral fees are prohibited by the law. This gives consumers the best escrow services at rates they can afford. If the person is asking for a referral fee, they should be reported to the authorities immediately.
A Few More Notes…
The first step in processing the requirements for escrow is looking for a reliable title company. It’s best if they are highly recommended by family and friends so you’re sure that they don’t have any negative record and that they’re not just after your money. You need a title company that has your best interests at heart so this step is very crucial. Once you find the title company that matches your taste, you can ask them to help you with the escrow processing.
When transferring properties, one of the important things that all involved parties need to ensure is that all requirements are met before the money is released to prevent disputes from happening in the future. Other crucial elements in the process are ensuring that the title is clear from claims or liens by other parties, which is something that can be secured with a title insurance processed by the title company.
So, do you need an escrow? The answer is yes. In real estate transactions, the safest way to handle money is through an escrow and again, it is only released when all of the agreements are met. Remember, when buyers, sellers, and other parties come together to work on business agreements that involve real estate, it’s inevitable that contracts will be signed and funds will be exchanged. Self-serving perspectives are bound to surface at some point during the transaction an escrow is one way to make sure that no one will be shortchanged. This is also the reason why it’s best of the escrow holder is a disinterested third party so that there will be no bias, whatsoever.