Escrow Explained

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Escrow Explained – What Is Escrow And How Does It Work?

The first step in a real estate transaction is typically to open an escrow account. For many first time home buyers, this can be a confusing process, especially if nobody has explained exactly what an escrow account is, or what an escrow company does. In order to assist our first time home buyers (and others who may be interested in the topic), below is an explanation of the escrow process and why it is necessary.

Escrow Defined

Escrow is defined as “a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promisee on the fulfillment of some condition.” In the real estate realm, it can be better described as a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties (i.e. the buyer and seller), with the disbursement dependent on conditions agreed to by the transacting parties. Escrow companies are companies that specialize in opening and handling escrow accounts, i.e. they specialize in acting as third party intermediaries who assist the buyer and seller with the exchange of documents and funds.

Why An Escrow Account Is Necessary

After a buyer and seller have agreed on the purchase price for a piece of real estate, the parties must ensure that each party receives the required disclosures and funds, has a right to inspect the property, qualifies for the applicable loan, pays the applicable fees and taxes, and more. This process typically takes at least 30 days, and the first step is to open an escrow account. The end of that process, or the “close of escrow”, involves the official recording of the transfer documents with the County Recorder’s office, and the disbursement of funds to the seller.

Escrow accounts are created to ensure that this process goes smoothly. The escrow company acts as a third party intermediary who receives funds from the buyer, tracks which disclosures have/have not been made by the seller, ensures that all applicable third-party fees (e.g. lender fees, inspection fees, etc.) and taxes are paid, and ultimately calculates the final amount that should be disbursed to the seller and whether the buyer is entitled to have any funds returned.

Of course, each transaction is unique and may involve different steps. A good escrow company is equipped to deal with these issues, either through experience or knowledge.

For more information on how Esquire Real Estate Brokerage, Inc. can help you in the Los Angeles real estate market, feel free to give us a call at 213-973-9439 or send us an email at info@esquirereb.com.

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