What Is Escrow?
If you’ve heard someone say the phrase, “We’re in escrow,” they’re talking about having initiated a financial arrangement where a third party holds funds, and plans to regulate the disbursement of those funds in the future. Essentially, rather than having a buyer transferring funds directly to the seller, their attorney, their realtor, etc., funds are transferred to an escrow account. The money is held in escrow until a transaction is finalized, at which point the escrow company/escrow officer will release funds in the appropriate manner.
Typically, the first moment in a real estate transaction that a buyer becomes aware of escrow is when earnest money is paid. Earnest money is a sum of money that serves as a deposit to show that the buyer is acting in good faith in the transaction, and intends to pursue the securement of a mortgage and the eventual purchase of a home. Putting the money in escrow, rather than writing a check directly to the seller, protects the buyer should the seller be unscrupulous.
Who Holds the Money?
As stated above, an escrow account is managed by a third party. The escrow officer is usually a title company representative or a attorney. The job of this party is to ensure that the money is held in a secure manner until all details of a real estate transaction are settled. Then, the escrow officer will pay funds per contract requirements.
The Advantages of Escrow
Escrow is a part of nearly all real estate transactions that take place in Massachusetts today, and is an essential step in protecting buyers and sellers, and making sure that funds are properly allocated. It also ensures that should one party breach the contract, or if there are contingencies in the purchase-sale agreement that allow either party to back out of the contract, funds are returned or paid as they should be.
It is important to note that while escrow accounts are common in real estate, escrow can be used for more than just buying a home. In fact, relying on a third party to watch over a transaction is wise for myriad reasons, especially when purchasing/selling expensive items. Further, escrow accounts are often used for making monthly mortgage payments.
Work with an Escrow Professional
Escrow, and its many uses, can be complicated to understand. The most important thing to know is that when buying a home, escrow is essential, and working with a trusted escrow agent is key. At Simple Title Closing & Escrow PLLC, we have the experienced escrow professionals you’re looking for, and can manage all transaction details on your behalf, providing you with peace of mind. To learn more, contact us today for your free consultation.