What is Escrow?
Escrow is a neutral third party that serves as an intermediately between buyer and seller during a real estate transaction. Escrow’s main duty is to handle the money. When you are dealing with large dollar figures of real estate deals, it is best to hire an escrow company- imagine how horrible it would be if someone ran off with the earnest money, or spent it! Or what if the deed was recorded in the buyers name before they paid for the property! These kinds of disasters can be avoided with escrow.
Sometimes buyers complain that they think escrow companies are overpaid. This is because a lot of what escrow does is behind the scenes. In truth escrow companies do a whole lot of work coordinating all the different people involved to make a real estate purchase happen.
Escrow companies coordinate with: the Buyer, the Seller, the Listing agent, the Selling Agent, transaction coordinators, the Buyer’s lender and their appraiser, the seller’s lender, the HOA if there is one, the title company, the city of Los Angeles and the state of California, the termite company, insurance company, home warranty company, and retrofit company, package shipping companies, and traveling notaries. Escrow make sure each state required item to complete a sale is taken care of before closing.
Escrow fees range from one to two thousand dollars for sales up to $1,000,000 and only a few thousand more for multimillion sales. The most I would expect to pay on an escrow for a transaction of any size is $6,000. The best practice for filling out a purchase agreement is to use the language “each shall pay their own fee” for escrow fee.
It is almost impossible for buyer to select the escrow company. I have never heard of it. The seller reserves the right to select services for escrow and title. Sometimes you can get your title company if you ask, but not escrow. Escrow companies are suppose to be neutral, but in reality they do play favorites within the boundaries of the rules. One example would be an escrow officer having a conversation with the buyers agent, then when they get off the phone, immediately calling the listing agent to report.
Escrow cannot take any action unless both parties agree and give their signed permission in writing. If both sides don’t agree the money sits in the escrow company’s trust account until there is resolution.
Escrow produces escrow instructions that outlines the details of the sale. Buyer and Seller receive a copy of the escrow instructions within a few days of escrow opening. Review and sign these right away, or it might hold up the sale. Any change to the instructions, such as an escrow extension or a seller concession, must be made with an escrow amendment signed by both parties.
This is a typical 30-day escrow timeline. Within the first three days the 3% earnest money is deposited into escrow, and the escrow instructions are delivered and signed. From then, the buyer’s lender will order an appraisal, and the buyer will conduct their inspections. Once the inspection period is up, it’s a waiting game for the loan to get approved. Within 5 days of closing the buyer may conduct their final walk through. The day after a loan is approved the lender will send Loan Docs. Loan Docs must be signed by the buyer with a notary. The day after loan docs are received is funding- the remaining balance of the down payment must be delivered to escrow via certified check or Wire transfer. The next business day recording takes place. Once the grant deed is recorded with the county you are officially the new owner of the property. Your agent can collect the keys and any other items that pass along with the property from the listing agent and you can move in!