The close of escrow is an exciting time for all parties involved in the sale of a house. If you are the Seller, you have your proceeds check and are on your way to another home. If you are the Buyer, you have the keys to your new home and are busy with the many details of moving. The process has been lengthy, time consuming and maybe even a little frustrating, but you can take comfort in knowing that what comes next is far simpler than the process up to this point.

Many people are involved in most real estate transactions. These parties work together to ensure that all necessary documents are provided, that all funds are distributed appropriately, and that the transaction is completed in a timely manner.

 

What Is Escrow?

Escrow refers to a third-party service that is part of every home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects a deposit from the buyer that is equal to a small percentage of the sale price. This deposit is known as “earnest money”. In exchange, the seller takes the property listing off the market. Until the final exchange is completed, both the seller’s property and the buyer’s deposit are said to be in escrow.

 

How Does an Escrow Account Work?

Escrow accounts are a part of the mortgage process homebuyers typically cannot avoid. With mortgages, home buyers typically pay a little extra into an escrow account every month, along with their home loan payments.

While a mortgage holder (most typically a bank) collects the principal and interest payments each month, they also can collect homeowner’s insurance payments and property taxes. They will then pay those bills when they come due. They do this because when you borrow money from a lender to finance your home purchase, the property becomes the collateral for your loan. Your lender needs to know that the property is adequately insured so that it can be repaired or replaced if damaged. Likewise, they want to prevent a tax lien being placed on the property if you neglect to pay taxes.

 

What Are Escrow Instructions?

Escrow Instructions are a critical part of a real estate transaction. They are the written instructions that are prepared by the escrow holder (usually a title company or an escrow company) that outlines the terms and conditions of the agreement between the buyer and the seller. These instructions serve as a set of guidelines that outline the terms and conditions that must be met before a transaction can be completed.

The main purpose of escrow instructions is to protect both parties in the transaction until all of the terms and conditions of the agreement have been met. From the buyer’s perspective, escrow instructions provide peace of mind that their funds are being held in a secure, neutral account until all conditions of the sale have been met. From the seller’s perspective, escrow instructions ensure that they receive payment for the property only after all conditions have been fulfilled.

Escrow instructions must identify the parties to the property transaction as well as the escrow agent that will be following the instructions. They advise the escrow agent on the terms of the agreement between the buyer and the seller, how to hold the funds, when to disburse the funds, the time period of escrow, and other details of the transaction.

 

When you receive your Escrow Instructions please make sure you:

1) Read the instructions carefully

2) Fill out all forms completely even though some information may seem repetitive

3) Let us know if you will be out of town during your escrow

4) Sellers, let your Escrow Officer know if you have any liens or judgments against you or your property

5) Be responsive and return paperwork promptly

 

What to Look For When Receiving the Instructions:

When reviewing your escrow instructions, make sure the information is correct; if you have questions now is the time to ask them.

Here is a list of items that are a part of your escrow instructions. Take the time to review these items carefully:

  1. Close of Escrow Date
  2. Property Address and Legal Description
  3. Purchase Price
  4. Names of parties involved
  5. Buyer’s Vesting
  6. Fees and prorated amounts
  7. Who is responsible for paying what – Title Fees, Escrow Fees, HOA Fees, NHD Fees, Credits, etc.

 

Understanding the Terms and Conditions

  1. Transaction Details

Escrow instructions provide a comprehensive overview of the transaction, including the property address, purchase price, and key dates.

  1. Contingencies

Contingencies are crucial clauses that protect the interests of buyers and sellers. These may include conditions related to inspections, loan approvals, or any other specific requirements outlined in the purchase agreement.

  1. Earnest Money Deposit

Escrow instructions typically address the earnest money deposit, which demonstrates the buyer’s commitment to the transaction.

  1. Title and Insurance

The escrow instructions outline the requirements and processes related to title searches, title insurance, and any associated documentation.

  1. Financing and Loan Documents

If financing is involved, the escrow instructions address the terms and conditions related to loans and mortgage documents.

  1. Closing and Disbursement

The escrow instructions also specify the conditions for closing the transaction and the disbursement of funds.

 

Parties Involved in Escrow

When it comes to escrow, there are several parties involved in the transaction. Each of these parties plays a crucial role in ensuring a successful closing. From the buyer and seller to the escrow agent and lender, everyone has a vested interest in the outcome of the transaction. Understanding the role of each party can help ensure a smooth and efficient closing process. In this section, we’ll take a closer look at the different parties involved in escrow and their respective roles.

  1. Buyer: The buyer is the person who is purchasing the property. They are responsible for putting down the earnest money deposit and obtaining any necessary financing for the transaction.
  2. Seller: The seller is the person who is selling the property. They are responsible for providing clear title to the property and ensuring that all liens and encumbrances are released prior to closing.
  3. Escrow Agent: The escrow agent is a neutral third party who is responsible for overseeing the closing process. They hold all funds and ensure that all necessary documents are signed and recorded, and that all funds are distributed according to the terms of the escrow instructions.
  4. Lender: The lender is the financial institution that is providing financing for the transaction.
  5. Title Company: The title company is responsible for ensuring that the title to the property is clear and free of any liens or encumbrances.