Escrow Agents: What Are They?
Third-Parties Are a Good thing… In Real Estate!
You will eventually receive money when you sell your home. Money can’t simply be handed over to you. It must be transferred in some other way. Before paying you, the buyer puts cash into escrow, which is handled by an escrow agent.
There are two distinct aspects to escrow. The first takes place before you complete the purchase of your home and the second occurs after you get your mortgage approved.
How Does Escrow Work Before You Buy A House?
Escrow is a method of holding money or assets between two parties: the buyer and the seller. A third-party company acts as a middleman between the home buyer and seller by acting as an escrow account, instead of the buyer giving the seller money to buy the house.
Money in escrow is transferred to the seller when the terms of a contract are met – usually at closing in the case of buyers signing their contracts. Buyers benefit from this, since they avoid dealing with fraudulent sellers, and sellers benefit from ensuring their potential buyers have the funds to purchase their properties.
The purpose of this type of account is temporary; once the sale is complete, it is no longer needed.
How Does Escrow Work After You Buy A House?
Mortgage lenders open a second escrow account after a home purchase. Taxes and homeowners’ insurance are paid from this account. Payments are made on your behalf by your lender through an escrow account.
During closing, that escrow account’s funds are prepaid. In some situations, lenders require that upfront costs, such as homeowners’ insurance, be placed in escrow before closing. Depending on what your lender requires, your property taxes will also be escrowed. In some cases, they may require you to pay three months’ worth of taxes in advance. Escrow payments will increase if your property taxes increase. As your insurance premium decreases, so will the amount you need for escrow.
How Do Escrow Agents Work?
Buyers and sellers use escrow agents to handle their transactions. After all the conditions are met, the money or assets are transferred to a neutral third party. The following are some of the responsibilities:
- Assisting homeowners and potential buyers by acting as a neutral third party
- Taking care of the title insurance policy
- Assessing the buyer’s eligibility for a loan and ensuring that the requirements of the lender are met
- Document preparation for escrow
- Funds will be distributed to stakeholders (sellers, agents, lenders, etc.).
- Closing escrow once conditions are met
Can anyone work as an escrow agent?
Attorneys can serve as escrow agents in some states and jurisdictions, but a neutral third party always plays this role. Escrow agents are not permitted to act as representatives for either the buyer or seller. Escrow agents can be individuals or companies recommended by both agents.
Is an Escrow Agent Necessary?
As soon as all the sales conditions have been met, money should be transferred from the buyer to the seller through an escrow agent.
It is typically not the seller’s or buyer’s responsibility to find their own escrow agents. The job is usually handled by the real estate broker or lender, but finding one on your own may not be as difficult as you think.
It is usually the title company that acts as the escrow agent in real estate transactions, such as the sale of a home.
Title companies receive money from buyers through wire transfers – usually down payments. Title companies hold onto funds while buyers and sellers meet the required conditions for a sale to close.
Title companies acting as escrow agents will transfer the buyer’s funds or assets once the conditions are met.
