Whether you are a getting into the market for the first-time or a repeat home buyer, there are many aspects to purchasing a home that can be a little less straight forward than others. One of the most commonly misunderstood aspects of buying a home is the escrow process.
Those who have not purchased a home before may be completely unfamiliar with the notion of escrow as it is something that exists exclusively in the real estate field. Escrow is the process of a home buyer handing money over to a neutral third party. The escrow account is opened at the moment when the buyer and seller sign a purchase agreement and the buyer is required to put down a deposit on the home.
The third party escrow officer holds onto the money until all of the contractual obligations are fulfilled on both the buying and selling sides of the home transaction. Once the contract is upheld, the money is then delivered to the seller and the transaction is completed. If any part of the deal falls through, the escrow funds can be returned to the buyer.
Escrow Ensures a Successful Closing
Escrow is a measure that works to protect both the buyer and seller side of the agreement. This is crucial especially in luxury real estate transactions, because in these cases millions of dollars is often on the line.
There are many elements of a home sale that factor into a contract such as contingencies for home insurance, flood insurance, home inspection, financing, repairs and other tasks to be handled by the buyer or seller in order for the transaction to reach the next step. As these contingencies are all met, the escrow officer is notified and the process proceeds in a calculated, organized manner towards the closing.
Many home owners often think of escrow as a form of a trust agreement. The two terms are often used interchangeably however there is a crucial difference between the two. In a trust agreement, a party holds onto funds until an act is completed. This is a much broader arrangement than an escrow as the trustee’s duties are to essentially take care of the assets for the benefit of the beneficiary above all else.
In an escrow agreement, the officer does not work on behalf of the buyer or seller. Rather the escrow officer’s duties are dictated by the terms of the contract. In this stage of the transaction, the escrow officer works as a fiduciary for both the buyer and seller while the contract provides the direction as to how the process should be handled and what matters are required to complete the transfer of funds.
Escrow and other parts of the home buying or selling process may seem complicated, but they can be made more digestible with the help of the right professional. If you are interested in learning more about luxury homes in San Diego or throughout the Southern California region, please be sure to give our representatives a call today.