3 Things You Need To Know About Escrow
If you are trying to close on a home purchase, you might hear the term “escrow” being used. This may sound like a complicated process but escrow is actually a way to make a home purchase more secure. Escrow has benefits for both the buyer and the seller in a deal.
If you don’t fully understand the process of escrow, that’s okay. Many people are unfamiliar with this concept if they have never bought or sold a home before. Fortunately, it’s easy to understand and it might be an essential part of your next home purchase. Here are the top three things that you need to understand about escrow.
- Escrow Enhances Security
A home purchase can be a complex endeavor, whether you’re the buyer or the seller. Both parties are dealing with a large exchange of money and property. For this reason, they want to make sure that they are protected.
Escrow accomplishes this by holding several items, such as the buyer’s deposit and purchase documents, in a secure place while the deal is finalized. This allows both parties to work out the deal in detail before anything significant changes hands. Buyers can use this time to conduct property inspections while the seller negotiates a price, for example.
The money and documents are placed in the care of a third party. An escrow officer will secure these items while the deal progresses and may be involved in the final process.
- It’s Affordable
Most escrow officers will be attorneys or representatives of the closing company. They typically charge a fee for their services. However, this fee is not usually very significant. Most escrow officers will charge a rate of 1 to 2% of the final cost of the house.
This is a relatively low expense for the security of the deal. Without an escrow officer, problems could arise after the title changes hands. For example, if a buyer chooses a home and then later discovers structural damage, there could be considerable costs associated with liability and repairs.
With an escrow officer, inspections can be required before the deal closes. This saves the costs of fixing problems by catching them before the deal ends.
- It’s Good For Buyers And Sellers
For a nominal fee, both buyers and sellers in a home transaction can avoid unpleasant outcomes. For example, if a buyer changes their mind at the last minute without a valid reason, the seller can recoup the advance fee that was put into escrow. This helps the seller offset the costs of listing the house while also encouraging buyers to be serious with offers.
Buyers are also protected because they can set out specific requirements that must be met before the deal can close. This can include home inspections, repairs and price negotiations. Buyers can use escrow to make sure they are getting a solid deal.
Escrow may sound intimidating but it’s actually a straightforward process with many benefits. When you’re shopping for a new home, escrow can keep you protected until you’re ready to close.