Blog Stories How Escrow Keeps Home Buyers and Sellers Safe

How Escrow Keeps Home Buyers and Sellers Safe

By Melissa Dorman, May 30, 2019

In real estate, an escrow account is a secure holding area where important items like the earnest money, checks and contracts are kept safe by an 3rd party until the deal is closed and the house officially changes hands.

Usually, the escrow officer maintains money and documents until the deal is done and escrow acts as a contractual arrangement between home buyers and the sellers.

How escrow functions

An Escrow Agent is someone from the real estate closing company, an attorney, or a title company agent (customs vary by state).

The Escrow Officer and Escrow maintain the money and documents until the deal is usually done in accordance with the  contractual arrangement between home buyers and the sellers. Escrow cannot dictate the terms of the contract, they can only enforce them.

A third party ensures everything during the transaction proceeds smoothly, which also helps in the transfer of money and documents. Escrow provides protection to all the relevant parties in a real estate transaction by ensuring that no money changes hands from the lender to property until and unless all conditions in the agreement have been met.

All of this takes place once all conditions are fulfilled, including removal of contingencies like home inspection, repairs and other tasks that need to be accomplished by the buyer or seller. And every time one of those steps is completed, the buyer or seller signs off with a contingency release form or addendum; then the transaction moves on to the next step and one step closer to closing. After everything is complete, the Escrow Officer clears (or records) the title, and buyer is now officially the new owner of the house.

The earnest money deposit and cost of escrow

Usually, the cost of earnest money is 1% to 2% of the cost of the home. This amount is kept with escrow after the contract is accepted as security that will compensate the seller if the buyer breaches the contract and fails to close. This is usually deposited with escrow within 3 business days after mutual acceptance.

How escrow protects you

Escrow protects buyers by protecting them with the risk of not getting the repairs done before closing. It also helps sellers if the buyers decide to bail on the transaction after due diligence, because the buyer could forfeit their earnest money to the seller by breaching the contract. In Oregon, Escrow and Title are the same company. Title is responsible for making sure all interested parties in a property are released from title prior to sale. Interested parties could be mortgage loans, spouses, heirs, ex-spouses, contractors, or tax liens. They also provide title insurance should someone make a claim on the property after closing.

Escrow, in other words, keeps everyone safe as they move forward in real estate transaction and acts as the unbiased middle party.

Melissa Dorman

Broker Licensed in OR & WA

Ten years ago, Melissa was living in a slum in Kolkata, India, helping over 200 women escape of sex-trafficking by providing alternative work at a social business. It was there she discovered her passion for financial education as a means of empowering people to move out of poverty. After graduating from UCLA with a Masters, Melissa spent 5 years working as a Social Worker; assisting clients facing homelessness, in jail, or at a psychiatric facility. As much as she loved the work, imagining saving for retirement on the meager salary of a social worker was becoming grim. That's when Melissa discovered "passive income." In no time, she fell in LOVE with real estate as a vehicle for wealth. Soon after, Melissa began locating off-market multi-family properties to purchase through creative financing strategies and win-win opportunities. Two years into investing, Melissa quit her day-job as a Social Worker to become a full time broker and investor. Initially she was drawn to people in difficult circumstances, so she developed extensive experience assisting families facing foreclosure, short sales, and probate. Melissa is well versed in helping her client's overcome complex real estate challenges. Currently Melissa is teamed up with Super Broker, Yascha Noonberg at Living Room Realty. Together they assist client's to achieve their real estate dreams, including how to strategically buy and sell a personal residence to maximize profits. Far from the slums of Kolkata, her greatest passion now is empowering other working professionals to develop passive forms of income through buying multi-family properties in Portland.
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