If you’re preparing to buy your first home, you may come across terminology you’ve never heard before. You should never hesitate to ask your buyer’s agent what anything means during your real estate transaction. Rest assured, your real estate agent has been asked the question before, and more importantly, they want you to be an educated homebuyer. After all, you’re making a significant investment, so it is essential you understand the process. To that end, one of the most frequently asked questions first-time homebuyers pose is: what is escrow?
What is Escrow?
Escrow is a legal arrangement. A third-party, neutral company (AKA escrow company) temporarily takes control of documentation and funds while real estate is being bought or sold. The process begins after the purchase agreement has been signed, and before you close on the home.
As a homebuyer, once you’ve signed the purchase contract, you will “open escrow.” A specific dollar amount, known as an “earnest money deposit” will be provided to the escrow company to secure until the transaction is complete.
The word escrow may also refer to the process, for example: “the house is in escrow.” Finally, the word is also used to refer to the escrow company. For example, your real estate agent may say “I got a call from escrow.”
So what is escrow used for? It is a safeguard for those involved in the purchase or sale of real estate. As a buyer, it protects your money, while the next steps in the home purchase process proceed.
Some of the steps that take place while you’re in escrow include:
- Title Search
A title company will be conducting research to confirm that the person who is selling the home is legally entitled to sell it. This search will also ensure that there are no liens or court filings pertaining to the property that could prevent the sales transaction from proceeding.
- Home Appraisal
The property you intend to buy must be appraised before the sale. In most cases, the appraisal is consistent with the asking price. In other cases though, if the appraisal comes in lower than the price you agreed to pay for the property, the additional funds will need to come from somewhere else, or the transaction will be canceled.
- Home Inspection
Home inspections are not required by all mortgage companies, but they are an excellent way to learn as much as possible about a home before you take ownership. You may also wish to have a property survey conducted. If issues are discovered, you’ll work with your real estate agent to negotiate for a repair and remedy or adjust your offer.
- Document Preparation (Mortgage docs)
Even if you were pre-approved for your mortgage, there will be a lot of paperwork that will need to be completed while you’re in escrow. The mortgage company will deliver these documents to the escrow company, which the escrow company will be responsible for reviewing them to ensure accuracy.
- Closing (Close of Escrow)
The final step in escrow is closing. During closing, any remaining funds are provided to the seller, and all of the pertinent documents will be signed by the buyer and the seller. Once the lender has received the documents, the funds will be released to the seller. Escrow will then close.
How Long is Escrow?
In some cases, it can be completed within just a couple of weeks, but tends to last 30-40 days on average. If problems arise with loans, or repairs, the process may take longer. However, when you work with an experienced buyer’s agent, you won’t have to stay on top of all the details yourself. Your real estate agent will keep you informed and up to date on every step of the process.
Questions About Buying Your First Home? Call a Lane County Real Estate Expert
Still not sure you understand the answer to the question what is escrow? Contact Taylor Made Real Estate today. Xander Taylor is a local Lane County expert, who lives, works, and raises his family here. As a Google five-star reviewed real estate professional, Xander Taylor is available to answer questions about buying or selling a home in Lane County. Send us a message or call 541-729-3632