There’s a lot that goes on between the time you make an initial offer on a new home and the date you move in. It’s part of the reason that hiring a real estate professional is so necessary - a real estate transaction is complex, with many moving parts that you may not fully understand.
My goal with my new Inside Real Estate recurring feature is to shed some light on some of the lesser known facets of the real estate industry and de-mystify some of terms you’ve heard thrown around, but were to shy to ask about.
First up: the Escrow Process.
What is escrow? How does the process differ in this part of California? Why does it matter to me?
Those are great questions - let’s dive right in!
What is Escrow?
The particulars of the escrow process can vary quite widely from state to state.
From a high level, escrow is part of the final stage of the home buying process. It’s the period of time between when the seller accepts an offer and the buyer takes possession of their new home. This is the time period that the bulk of the actual real estate transaction occurs.
To start, this is when home inspections take place, final mortgage approvals occur, not to mention a decent pile of paperwork to support it all.
Most importantly, escrow is when a third party (known as an escrow holder) will take possession of any funds and contracts until all details are sorted out and the sale can close.
An escrow holder will have no affiliation to either buyer or seller, both parties have agreed to allow a neutral third party to help facilitate the final stage of the home buying process.
How is the Escrow Process different in California?
There are actually differences in some of the details of the escrow process based on where you live in California: north or south.
This difference has to do primarily with the inclusion of a title company in the process. In the southern part of California, the escrow process involves a title company in addition to an escrow company, in the north only a title company is required.
An escrow agent can be any of the following:
A corporation specializing in escrow services
A bank, mortgage broker or insurance company
A title company licensed by the California Insurance Commissioner
Any involved real estate broker licensed by the California Bureau of Real Estate
Why Should I care about the Escrow Process?
Whether you are on the buying side or the selling side, having an escrow agent manage funds and contracts takes away a lot of potential liability and risk.
For the buyer, you can rest assured that any earnest money that you’ve put forward will be set aside and will be readily returned to you should the deal fall through. Buyer’s can rest assured that their money is in a safe place while they have a chance to fully assess the property and make any final payment arrangements.
For the seller, any way that you can make a buyer feel more comfortable will make a sale that is much more likely to succeed. It also removes any personal liability of having to manage such a significant sum of money.
Most importantly however, an escrow agent can also act as an essential unbiased mediator to help resolve any disputes that may arise.
There you have it. Escrow is an important and necessary final piece of purchasing a new home. It benefits both buyers and sellers, giving both parties faith in the process and allowing the transaction to come to a successful close.