Whether or not you have a limited understanding of real estate jargon or if you’re thinking of buying property for the first time, you’re going to want to know what “escrow” means and how the home buying process works.
What does escrow actually mean?
Escrow is simply a non-biased third party that holds important payments and paperwork prior to closing. So what does it mean to say, “your house is in escrow”? When your house is in escrow, it typically means that the buyer’s earnest money and any other negotiations or paperwork are being held by a third party and won’t be processed until all contingencies and agreements are met. At closing, the escrow officer puts the transaction on record, officially putting the property into the hands of the new owners.
Is using an escrow service really necessary?
Escrow services exists to protect both parties from getting taken advantage of during the home buying/selling process. For example, if the buyer asks that the plumbing get fixed prior to moving in and it doesn’t get completed when it comes time to close, an escrow officer ensures that the buyer’s money won’t get taken until that happens. Escrow ensures that all contingencies are met and that money isn’t tampered with.
What does it cost to use an escrow service?
The cost of putting your home in escrow depends on the company performing the service. This third party could be the actual closing company, a title company agent, or even an attorney. Both parties in the transaction pay about 1%-2% of the cost of the home to the escrow company.
Ultimately, the escrow process protects you from being taken advantage of — no matter if you’re the buyer or seller. While it seems like yet another cost in the arduous home buying/selling process, it’s very important and plays a big role in the transaction. If anything, the escrow process offers you piece of mind as you make one of the biggest investments of your life.
Do you think the escrow process is necessary for a smooth transaction? Let us know in the comments below. Read Preparing to Buy Your First Home for more tips and information on buying a home.