Homebuyers hear phrases that are often freely thrown around by realtors such as, “Sorry, that home’s in escrow,” or “It fell out of escrow,” or even better “We’re closing escrow!” Escrow is an extremely important part of the home purchasing process. But what exactly is it? Here’s a simple crash explanation of escrow and how it benefits both buyers, sellers, and all parties involved in a real estate transaction.
Escrow is from the French word, “escroue,” meaning a scroll or a piece of paper that verified the ownership of a piece of property held until the transaction was complete. In California escrow companies are designed to act as a third impartial intermediary between the buyer and seller. They ensure that all parties are protected during any real estate transaction. Locally, they are referred to as title companies since many escrow companies also issue title insurance. Three major title companies exist in Ridgecrest: Placer Title, First American Title, and Chicago Title.
After a purchase offer is accepted by a buyer and seller, the seller’s realtor will generally submit an executed contract to a title company in order to “open escrow.” The title company’s role is to then collect and remit funds as instructed by the purchase contract. Within three days buyers are to submit their earnest money deposit into the escrow account. This may also include additional deposits and later the buyer’s down payment. The title company will also receive inspection invoices of any inspections performed during the sales process.
A major role of the title company is to compile an escrow package that will be signed by the buyers and sellers. This important set of documents will investigate and determine the new legal ownership through a title search. It will also confirm that the property meets the requirements imposed by the buyer’s lender. The title company will also prorate taxes and insurance and draw up a closing cost statement with all costs incurred by the buyer and the seller. “Closing escrow” occurs when all instructions of the purchase contract and buyer’s lender have been fulfilled, and the new property’s owner’s deed is recorded with the county recorder’s office. The title company will then disburse proceeds to the seller and payoff any vendors who have submitted invoices.
Escrow/title companies are an indispensable part of a successful sale. They are designed and regulated by the State of California with the intent to ensure a smooth and trouble-free trans-fer. Think of them as a neutral protector always looking out for your best interests. Escroue, merci beaucou! Have more questions? Call me, Clint Freeman at (760) 382-1082 and let’s talk!