Most people are not involved in real estate transactions very often. So, most people do not understand all the procedures involved in buying and selling real estate. The term “escrow” is used routinely when discussing almost any real estate transaction. Escrow is generally defined as an independent third party holding money on behalf of transacting parties. In real estate transactions escrow involves much more.
When you find a home that you wish to purchase your Realtor will prepare a written offer to present to the seller. When the offer is accepted, or ratified, you have a contract and an escrow is opened. In our area this function is performed routinely by title companies. Your deposit(s) will be held in escrow for the duration of the escrow period and the escrow officer will begin to interact with Realtors, your lender, your insurance company and governmental agencies. They will order a title report and verify that the seller has clear title to the property that can be conveyed to you at the closing.
During the escrow period the terms of your contract will be followed as escrow instructions. These instructions always involve the division of financial responsibilities between the buyer and seller. Escrow will calculate the dollar amounts that each party is responsible for and account for them on a closing statement. There are usually expenses that have to be pro-rated for buyers and sellers. Property taxes, interest payments and rents usually require prorations. Other expenses such as title insurance fees, escrow fees, recording fees, home warranties and transfer taxes are charged to the appropriate party and recorded on the estimated closing statement.
Becoming familiar with a closing statement in advance can help relieve some of the anxiety and stress related to your real estate transaction. Your Realtor can prepare one with you so that you are able to know in advance what all of your financial responsibilities will be.
The escrow period will continue until the day of closing when your purchase is recorded with the County Recorder, at which time the escrow will close. At this point the escrow will provide your funds to the seller and you will receive the deed to the property.
This article was published in the San Francisco Examiner.
Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.