In the real estate world, we use a lot of terms that may seem foreign and alien to new homebuyers. Sometimes when using these terms, the buyers just nod in agreement, without fully understanding what they mean. One example of such a term is “escrow”. What does it mean? What is it, and how will it affect me? After we’re done, you’ll be able to discuss all things escrow with your friends.
Escrow, in its simplest form, is just a deposit of funds, deed, or other instrument made by one party, held by a third party, and will be delivered to the other party upon the completion of a specific condition or event. Let’s give a real world example: Your brother has an old Earth, Wind, and Fire album that you want, but he can’t find it in his music collection at the moment. You really want the album, so the both of you set up an “escrow account” with your Uncle Joe, who will hold onto your money until your brother can find the album. Once he has it, your Uncle Joe will release your funds to your brother, and he’ll give you the album. See, it’s pretty simple, right?
Just like with Uncle Joe, the escrow account you will have for real estate purposes will, at the very least, hold your funds until you have closed on the property, but in some cases it can also contain the deed. An escrow is important because it guarantees you that no payment will leave hands until all terms and conditions of the buying agreement are met. These accounts will generally last for a few days, but depending on the length of your home buying process, they can last for a few months. You don’t need to worry about setting up an account; we’ll take care of that for you.
Once the escrow account receives confirmation that you have closed on your house, it will release your funds to the seller. After that, the escrow account will complete any other instructions it has received, and then it will close, signifying the end to the process, and the beginning to your new home.
Now you know escrow in a nutshell. See, these fancy real estate terms aren’t too bad when they’re broken down. If you have any more questions about escrow or anything pertaining to real estate, give us a call, or talk to your local American Dream Realty agent.