What Is Escrow All About?
So what is an escrow? An escrow is when something of value is placed into a trust with a 3rd party while conditions to an agreement are satisfied. So if there’s a large transaction with a lot of components to it – it would be very common to open an escrow and have deposit money held there while everyone does their prep work to complete the transaction. Which is exactly the case for a home purchase.
When Does Escrow Start?
When you find yourself with an accepted offer, you are in contract (that’s how it’s referred to), to purchase or sell a property – deposit money is then sent to an escrow company where it’s held while the buyer and seller do their prep work to arrange for the final sale. At which point, when everyone has done what’s required of them, the escrow officer will make sure that the transaction closes properly with each party getting what they were expecting from the contract. Practically speaking in a home purchase, an escrow is that period of time (and all the things that are supposed to happen during that time) between an acceptance of an offer and the closing and getting keys. Where the buyer is now the new owner of the property. And all the steps that occur in between those two time frames.
There’s actually a lot of things going on and that time frame is typically 30 – 45 days. That would be very common – especially if there is a loan involved. Thirty days would be a relatively fast, but doable, period for escrow. Forty-five days gives everyone a little bit more time. But you will find that’s the time frame for all of the things to occur once you have an accepted offer.
What Happens During Escrow?
The sequence of events would begin with opening escrow. This means finding an escrow company that would manage the transaction. Placing the deposit in escrow so that money would be held during that escrow period – while the transaction is being processed. The buyer will have responsibilities now to arrange financing. They probably have quite a bit prepared – but now that there’s a contract in place and an open escrow there’s a lot more things that the lender will do to make sure that the loan will be secure. The loan is one of the larger responsibilities of escrow for the buyer.
There’s also going to be disclosures. The seller is required to disclose everything they know about the property. So there will be a lot of reports describing the property, perhaps the natural hazard disclosure report. The seller is going to fill out some forms describing what they know about the property including things that may be wrong or in need of repair or that would just be objectionable to any buyer. The seller needs to prepare those disclosures and get them to the buyer. The buyer needs time to review all of the disclosures.
The next step would be inspections. The buyer’s going to do variety of inspections – a home inspection, a pest inspection, etc. And from that you might find other inspections that you would want to do if those raise any red flags. For example, if the home inspection points out some water damage or something wrong with the roof – you might arrange for additional inspections. So those things all happen during that escrow period.
Moving Toward Closing
At some point during escrow – you’ll take that next step forward – the buyer would release contingencies. This makes any deposit monies non-refundable. That gives the seller some confidence that there’s no backing out without some kind of penalty. This also helps the buyer prepare because they have to plan on packing up and moving out. The seller is going to arrange to make sure they can deliver clear title. A title insurance company is going make sure there’s no claims, or clouds, or issues related with title.
All of these things are happening during that 30 – 45-day escrow period. So escrow is really just the period of time where you now have the buyer and seller in agreement through the transfer of ownership and the handing over of keys – and all of the things that are going on during that time frame.