How escrow works when selling a house?
Escrow is a crucial part of the home selling process, serving as a secure intermediary for the buyer and seller. When a house is sold, the buyer’s earnest money is placed into an escrow account, along with the final sale amount, until all conditions of the sale have been met. Once the conditions are satisfied, the funds are released to the seller, and the title of the home is transferred to the buyer.
Escrow ensures that both parties fulfill their obligations in the real estate transaction, providing protection and peace of mind for all involved. Here is a step-by-step guide to how escrow works when selling a house:
1. **Opening Escrow:** Once a buyer’s offer is accepted by the seller, the escrow process begins. The buyer will deposit their earnest money into an escrow account, signaling their commitment to purchasing the home.
2. **Home Inspection and Appraisal:** During escrow, the buyer will typically conduct a home inspection and have the property appraised to ensure its value.
3. **Title Search:** A title search will be performed to verify that the seller has the legal right to sell the property and that there are no liens or judgments against it.
4. **Contingencies:** The sale may be contingent on certain conditions, such as the buyer securing financing or the seller making necessary repairs. These contingencies must be met before the sale can proceed.
5. **Closing Documents:** Both parties will review and sign various closing documents, including the purchase agreement, deed, and any additional paperwork required by their state and lender.
6. **Funding:** Once all conditions have been satisfied, the buyer will provide the remaining funds for the purchase price. These funds will be deposited into the escrow account.
7. **Closing:** The escrow officer will oversee the final steps of the transaction, including the transfer of funds and the recording of the deed with the county.
8. **Distribution of Funds:** Once the deed has been recorded, the escrow officer will distribute the funds in accordance with the purchase agreement. The seller will receive their proceeds, and the buyer will take possession of the property.
9. **Closing Costs:** The buyer and seller will pay closing costs as part of the escrow process. These costs may include fees for the title search, escrow services, and other expenses related to the sale.
10. **Escrow Timeline:** The length of the escrow period can vary depending on the terms of the purchase agreement and the complexity of the transaction. Typically, escrow can last anywhere from 30 to 60 days.
11. **Escrow Fees:** The buyer and seller will each pay a fee to the escrow company for their services. These fees are usually calculated based on the sale price of the home.
12. **Escrow Account Maintenance:** After the sale is complete, the buyer may continue to maintain an escrow account with their lender for property taxes and homeowners insurance. This account ensures that these expenses are paid on time and in full.
In conclusion, escrow is a critical component of the home selling process, providing a secure and transparent way for buyers and sellers to complete their transactions. By understanding how escrow works and the steps involved, both parties can navigate the process with confidence and peace of mind.