The world of real estate can be exciting but also complex. If you’re not a professional real estate agent, your first encounter with this realm can be truly overwhelming; regardless of whether you’re a seller or a buyer. Terms like equity returns or amortization aren’t something you’re intuitively familiar with. And escrow definitely finds itself on that list for most people, which is why we’ll explain the concept of real estate escrow in different states right here!
Escrow 101
As we’ve mentioned already, you probably don’t have an intricate knowledge of the real estate escrow process if you don’t work in real estate. That’s one of the main reasons why you want to be connected with the top agents in the industry; you need someone who knows what they’re doing. Plus, Park Place will not only find you a knowledgeable and experienced real estate agent, but we’ll also help you find someone who will rebate you a whopping 15% of their commission! Real estate transactions are costly, and every bit of returned value helps.
Speaking of the transaction itself — where does escrow fit into all of this? Namely, this process is a part of real estate transactions that plays a vital role in their successful completion, but even people that go through them don’t always understand how it works.
Closing States
Once all of the prerequisite conditions have been fulfilled for the completion of a real estate transaction, each one of the parties involved has to go through the legal finalization of the agreement. How this is done in practice differs from state to state.
For example, let’s say that you decided to move to Maryland. Before calling the crew from Excalibur Moving and Storage to perform the relocation, you have to find and purchase a home. This is a “traditional” state, that uses the so-called closing process to legally finalize this type of transaction.
In non-escrow states akin to Maryland or Georgia, the process of closing is performed face-to-face. All of the involved parties, including the sellers and buyers, have to meet physically in order to finalize a real estate purchase. They appoint a specific time and sign each of the required legal documents. Once the money and the property title have been exchanged, the process is considered legally complete.
Escrow States
On the other hand, there are the eponymous escrow states. For instance, if you're moving to your first property that you’ve bought in California or a similar escrow state, you will have to go through the escrow-led purchase agreement before the transaction is done.
This agreement is something the involved parties reach as they prepare for the transaction. Namely, it contains the escrow instructions, citing any specific stipulations pertaining to the disbursement of all funds and the subsequent property title transfer. Unlike the closing process where all parties eventually meet and manage their documents, the escrow process requires the assignment of an escrow agent that will hold all of the funds and documents “in escrow” before the closing is complete.
This includes any money involved in the process, such as the purchase price or the closing costs. If the buyer uses a mortgage loan to purchase the home, the same goes for any funds that are needed for the transaction of the loan.
Once all of the stipulations found in the predetermined purchase agreement have been fulfilled in accordance with the instructions, the funds are divided accordingly, all of the documents are signed, and the transaction is considered final from a legal standpoint. Unlike in traditional closing states, an escrow finalization does not necessarily include a physical meeting of all the involved parties.
What Is Escrow?
As you may have gathered already, escrow is a process that entails a neutral third entity that’s there to safeguard funds involved in a transaction while it is completed. It’s used in a variety of transactions, but with a similar purpose. When it comes to real estate escrow, it’s designed to protect all parties — both the seller and the buyer.
On the one hand, the existence of escrow is a guarantee to the real estate seller that the prospective buyer actually does have all of the money required for the purchase. It’s also a guarantee that the funds will definitely be transferred when they exchange the property title.
On the other hand, it protects the buyer as well. A buyer in an escrow state is less wary of fraudulent sellers that don’t really have a legal claim to the property title. This sort of thing would be discovered in the real estate escrow phase of the transaction, as the title has to go into escrow as well. After all, real estate purchases are a high-value transaction — and one where the two parties are almost never actually familiar with each other. In that situation, escrow maintains the bona fide status of the transaction.
Escrow Agents
The entire escrow process is managed by an escrow agent. This is a neutral entity or individual that will hold the titles and payments as the two parties meet all of the predetermined conditions. These people are also called “title agents”, because the title exchange is the most crucial part of a real estate transaction. Usually, the involved parties don’t have to find an escrow agent; they’re provided by a lender or broker, and you simply need to pay them.
If you have heard about a particularly experienced title agent that you want to work with, there’s always the option of selecting a specific escrow agent. This is a matter of agreement between the two parties; though, if there are disagreements on the issue, sellers usually have the deciding power here.
Written by: Lisa Robert with US Moving Experts