What is ESCROW? What is an ESCROW COMPANY? What does an escrow company do? | Real Estate 101
What is ESCROW? What is an ESCROW COMPANY? What does an escrow company do? I get these questions asked so many times! This video will answer those questions!
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You hear "ESCROW" a lot when you talk about real estate transactions. To people like us, you know real estate agents, it makes sense to us, but to people like a buyer or seller, you might not know what this is.
Escrow is usually a 45 day process in which the buyer conducts needed inspections to make sure the home is everything what it seems to be. SOMETIMES it can be 30 days. 30 days are usually very fast. From my experience, a 30 day escrow usually happens because of a negotiation technique.
So for example if my clients want to buy a home that’s on the market and it receives multiple offers, we need to find some way to make our offer stand out so the sellers can pick us.
One negotiation technique we do is we make the escrow 30 days rather than the standard 45 days. Most of the time this is appealing to the seller. Because sellers want to sell and they would want to sell fast.
An escrow company is a neutral third party that makes sure the buyers and sellers do their jobs during the escrow period. So they are basically the middle man or middle party between the buyer and the seller. Those initial and additional deposits I mentioned earlier would be submitted to the escrow company to hold. So basically they are protecting your funds while making sure the different terms of the contract are fulfilled.
So let’s talk examples
My favorite go to example for buyers would be to conduct their inspections. In the contract it would usually say the buyer has x amount of days let’s say 15 days…to conduct their inspections. This is when you hire a home inspector to conduct a thorough inspection to see if there’s anything wrong with it. Once you do that and everything is okay and you would like to “move forward” with the transaction then you would need to give an additional deposit to escrow.
For sellers, they really don’t do much. For the most part they hang tight while the buyers hire their vendors to conduct all their inspections. If anything the sellers’ job is to make sure their home is readily and reasonably accessible for the buyer to do their due diligence.
At the end of escrow the escrow company will receive the funds whether if it’s cash from the buyer or the buyer’s lender and disperse the commission to the brokerages, any reimbursements from vendors, and then finally the net proceeds to the seller, then finally the transaction will record and title passes on to the buyer aka the new owner. And that is pretty much, a real estate contract… A promise for a promise. The seller promises to give the house to buyer if buyer promises to pay!
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