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Real estate escrow: What is it and why is it needed?

Escrow on document

If you’re buying or selling a home, sooner or later you’re going to encounter escrow. The term is a common source of confusion and a lot of head-scratching, especially for first-timers. To make your real estate experience easier, it’s best to enlist the help of top realtors in Phoenix, Arizona.

Here at Urban Luxe Real Estate, we want to help you in every step of the real estate process. To save you time and effort, we’ve created this handy guide with everything you need to know about escrow.

What is escrow?

Escrow is a contractual agreement where a third party holds an asset of the buyer and seller while they accomplish certain conditions. This impartial third party is there to make sure the buyer and seller are staying true to their end of the deal until the schedule for escrow ends or until they complete the requirements for closing the real estate transaction.

Assets held by the third party are considered “in escrow.” These could be in the form of money, property, documents, and the like. Because of the high value of assets being turned over to them for safekeeping, it is a must that the escrow company you find is trustworthy and reliable.

Why is escrow important?

Escrow creates safeguards for everyone involved in the real estate transaction. Buyers and sellers are protected by ensuring no funds or titles are given out until the deal is closed.

Buyers, for example, can put a hold on the deal until the seller meets their conditions. Meanwhile, if a buyer walks out on the deal, sellers will receive the buyer’s earnest money deposit of around 1% to 3% of the home’s price.

What is an escrow account?

An escrow account is where the buyer deposits their money during the transaction. This account is managed by the third party that handles the escrow process. Once the seller accomplishes their end of the bargain, the money from the account is transferred to them.

The escrow account isn’t limited to just the sale of the home. Buyers can use an escrow account to pay for property taxes and insurance. This type of escrow account is managed by a mortgage lender. They incorporate the price of taxes and insurance into the homebuyer’s monthly payment so that they can pay for these with ease.

How does the escrow process work?

Escrow begins when the buyer and seller sign a purchase agreement and send it to an escrow officer. The officer will make sure that all conditions of the agreement are satisfied before the deal is closed. This includes ensuring that the buyer makes an earnest money deposit and secures financing. They will also see to it that the seller provides disclosures and meets conditions set by the buyer.

The escrow can be closed once all conditions have been met and the escrow instructions have been completed. When this happens, the funds are released to the seller and the property title is legally transferred to the buyer.

The duration of the escrow process varies from deal to deal. Usually, it takes around 30 to 60 days. For a speedy transaction, have the proper documentation on hand as soon as possible.

Learn more about the home buying process with us at Urban Luxe Real Estate. Call us today at 480.359.6519 or send an email to