Escrow is an essential real estate term you’re sure to encounter in the home buying or selling process. But what is escrow, exactly? Here is a basic guide to understanding this important part of real estate transactions:
Defining an escrow account
Escrow is a legal agreement where funding and assets are held by a third party. This neutral third-party keeps the funding safe as a transaction is being completed. Once the transaction is completed, funds are allotted to the correct parties. An escrow agreement is often seen in real estate transactions, but can also be seen with other industries such as with art, jewelry and more.
Once the money goes into escrow, the seller has to follow through to finalize the sale. Once the deal is complete, the escrow money goes to the seller and is subtracted from the total mortgage payment price.
Escrow is also used by mortgage lenders after the closing of a home. Your lender takes a share of your monthly mortgage payment and puts it into an escrow account. When property taxes and insurance are due, the money is released. This can be very helpful for homeowners as it takes the task off their plate.
Understanding how escrow works
Escrow is used for two primary reasons in the real estate industry: good faith deposits and funding for insurance and property tax fees. Good faith deposits testify to the buyer’s sincerity and earnestness to following through with purchasing the home.
For example, a seller may invest money to make repairs on a property once an offer is accepted. They may have purchased new light fixtures or new carpet at the request of the buyer.
The seller keeps the earnest money if the buyer backs out of the agreement. This supplements the money they paid due to trying to fulfill their end of the deal.
Earnest money deposit
The earnest money deposit goes towards the home’s down payment once the home purchase succeeds. An escrow officer will allot payments and will deliver the deed to the county recorder to note before closing the escrow account.
What are the benefits of escrow?
An escrow account ensures both parties are financially protected. Using an escrow company ensures funds are handled correctly. Usually, payment into this account comes from both the buyer and the seller, which encourages accountability on both ends.
Having an escrow account is a vital part of the home selling and home buying. Speak with a trusted real estate agent and escrow officer to better understand your options.
About the Author
Amie Lindwall-Belile
As your real estate professional, Amie has an extensive knowledge of the local real estate market to meet your needs. Born and raised in Fairfield County she understands the true value of this area. If your money’s involved, then the stakes are high. You can have confidence that Amie will get the job done. Licensed in 2004, she won her office’s Rookie of the Year award. Since then, she has been recognized as a multi-million dollar producer, an Honor Society member, Agent of the Month on numerous occasions and has received various other awards for her successes.
Having graduated from Southern Connecticut State University with a B.S. in Communications focusing on technology, she is able to provide her clients with the most comprehensive cutting edge services and tools. She is the co-founder of an organization close to her heart, The Dennis Lindwall Foundation, running annual events to raise money for pediatric cancer related causes. Over the years, the Dennis Lindwall Foundation has donated more than $100,000 to these charities.
Whether you are buying or selling a home in Fairfield County, you can rest assured that she will work very hard for you. With Amie, you will get the professional yet personalized care that you deserve. Take the first step into this exciting process, with Amie Lindwall-Belile.
