What does it mean for a buyer to be “in escrow”?
Purchasing a home comes with excitement, responsibility and a whole new vocabulary. What does it mean for a buyer to be “in escrow?”
To be in escrow means that the buyer and seller have agreed to the terms of sale as outlined in the purchase contract, and that a third party has joined the transaction to ensure the conditions of sale are completed before any money exchanges hands. The third party, usually an escrow company, acts as neutral oversight, holding onto escrow money until the contract is complete. The escrow company is also tasked with gathering all documents to ensure closing can happen.
Once both parties have signed the initial purchase agreement, an escrow account is opened with an escrow company that is named in the contract. The buyer deposits their escrow money into the account as a sign of good faith that they intend to follow through with the contract. Although the conditions can vary from contract to contract, escrow money is generally forfeited to the seller if the buyer backs out of the contract, while it is returned to the seller for use toward their down payment when the purchase is closed.
During the escrow period, the buyer has a set amount of time to complete conditions of the purchase such as obtaining financing or performing inspections on the property. If all goes smoothly, once the conditions of sale have been met, the buyer will sign off on the final closing paperwork and funds will be released from escrow to complete the sale.
Being in escrow provides protections for both the buyer and the seller. First, because the escrow account is held by a neutral third party, neither the buyer or seller is at risk of being taken advantage of by outside interests or losing money that is rightfully theirs. Escrow also streamlines the buying process by ensuring that all necessary paperwork and funds are in order before closing; this prevents delays or surprises that could derail the transaction.
If you’re in the process of purchasing a home, it’s important to know that you are in good hands. Working with an escrow company like Clear Title ensures a smooth and successful transaction. Have questions about escrow? Contact one of Clear Title’s offices, where one of our qualified escrow agents will ensure you understand all the terms and conditions of your sale.
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