Opening escrow serves as a critical action in real estate transactions. It is a second-party neutral process to ensure that all contractual obligations are fulfilled before the transfer of funds and title. In many jurisdictions, an Escrow Agent Bond may be required to ensure that the escrow agent handles funds and documents ethically and in compliance with state regulations. If you are on the buying or selling side, knowing how escrow works and how to work it efficiently can be the guarantor against delays and a smooth closing.
What Is Escrow?
Escrow activities occur when surety is held by a neutral third party or some entity (an escrow officer or escrow company) for the buyer and seller, pending in full performance of the conditions of sale, which may, and ordinarily do, include the completion of inspections, appraisals, financing, and the resolution of any contingencies outlined in the purchase agreement.
Once all things are imminently ready for the transaction, the escrow officer pays funds away, records the transaction, and assists with the legal transfer of title.
How to Open Escrow
The actual process of opening escrow usually begins just after the buyer and seller have agreed on the terms of the purchase agreement. A step-by-step overview is described here:
- Signed Agreement: Upon signing the purchase contract by the buyer and seller, either party or their registered agent may initiate escrow.
2. Escrow Instructions: The escrow officer then prepares a set of instructions to accompany the purchase agreement. These instructions specify the responsibilities of the parties and the steps necessary for the completion of the transaction.
3. Earnest Money Deposit: As a sign of good faith, the buyer usually puts in earnest money into the escrow account. This money will be held there until the time of closing and applied toward the purchase price.
4. Document Collection: The escrow officer will gather documents required from all parties—listing title reports, loan documents, disclosures, and the release of contingency form.
5. Fulfilment of Conditions: All parties endeavour to have fulfilled their contractual obligations, manuals, or whatever they need to fit—inspections, loan approvals, or repairs. Following the conclusion, the closing will take place.
6. Final Review and Closing: After a final review conducted by the escrow officer, all parties are ready to sign the closing documents, transfer funds, and record the title in the buyer’s name.
Tips to Expedite the Escrow Process
Escrow holds a reputation for always having delays, though most are preventable through some level of planning and communication. Effective ways to speed this process up are as follows:
- Respond Quickly: Quick responses to requests from the escrow officer, lender, or real estate agent are imperative to avoid causing a blockage. Provide what’s needed or sign forms as soon as possible.
- Stay Organised: Keep important documents such as loan pre-approvals, bank statements, and copies of IDs handy. The more in order you are, the better the process will go.
- Do Inspections Earlier: Schedule the home inspections and appraisals early. Delays in any of these steps could put this whole process on hold.
- Clear Contingencies Quickly: Do not wait for the last minute to deal with contingencies. Remove or negotiate contingencies ahead of time to keep surprises away at the closing.
- Use Experienced Professionals: An experienced real estate agent and escrow officer can see problems arising and come up with ways to keep the process running smoothly.
Conclusion
A crucial step in the real estate process, opening escrow provides buyers and sellers with security and structure. You can expedite the process and confidently and efficiently close your transaction by being aware of the steps involved and taking proactive steps.
