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What Is Escrow?

What Is Escrow?

 

Escrow is another one of those complicated real estate terms that you’re not really sure what it is or what it means until you actually have to use it. If you’re a first time home buyer, you may have absolutely zero clue what the heck an “escrow” is at all. Escrow is a sort of liminal space in the home buying process, where deals and transactions are frozen in time while you sort everything out. Zillow defines it as: “when an impartial third party holds on to something of value during a transaction.” You may be thinking ‘Okay, well, it still sounds complicated.’ And don’t worry, it is complicated. That’s why we’ve written this article all about escrow: what it is, how it works, why it’s needed, and how long the process takes. Let’s jump right into it!

 

Escrow in Detail

 

First, it should probably be noted that regarding mortgages, “escrow” and “escrow accounts” are two separate concepts. Escrow is the process in which a neutral third party mediates the transactions in a real estate deal, keeping money and property “in escrow” while the two parties negotiate. Then, once both sides come to an agreement and the conditions are met for the sale to close, the funds are released and allocated to their respective rightful owners. 

 

An escrow account on the other hand, is an account that helps manage a mortgage borrower’s annual tax and insurance costs. Homeowners will typically pay money into this escrow account on a monthly basis, and then the lender can automatically pull the required funds for associated real estate fees so that the homeowner doesn’t have to worry about it. An escrow account is usually automatically created by the bank or direct mortgage lender that you secure your mortgage from. By having this account in place, it reduces the risk of the homeowner falling behind on payments to the government or insurance provider, so it’s a kind of safety net in that sense. 

 

Though escrow and escrow accounts have different definitions, both of these have one consistent element in common: escrow is a way to store funds for safekeeping until they are needed to serve their intended purpose, whatever that may be. 

 

How Do Escrow Accounts Work?

 

escrow in closing

As we mentioned earlier, an escrow account is established when you obtain a mortgage loan from a bank or direct lender for the purpose of helping you keep up to date with your property taxes and homeowner’s insurance premiums. Because these fees are owed on an annual basis, it can be easy to forget about what you will inevitably owe by the end of the year. This is why an escrow account is helpful, because you have an established amount to be paid monthly into the account to accumulate, that will cover all of those annual costs so that you aren’t taken by surprise.

 

Downsides of Escrow Accounts

 

Escrow accounts are in place to keep you on track as a homeowner and to ensure that the bank or lender is protected as much as possible when it comes to annual fees. There is a mutual benefit to these accounts, which takes a lot of pressure off of everyone involved. However, unfortunately this setup does not come without drawbacks. One of these is that lenders typically require you to maintain a minimum balance in your escrow account to protect against unexpected increases in cost. This evens out to be around two months of expenses on your mortgage escrow account. Although, depending on how “risky” your mortgage is considered to be, the limit could be even higher. Lenders will review your account once a year to ensure that the calculated payments are aligned with the costs.

 

Buying a Home and Escrow 

 

Now we’ll talk more about escrow in regards to property transactions and transfers. When buying a home, the process begins when you make an offer. When you make an offer on a home, you will write an earnest money check that will go straight into escrow. Again, this means it’s not going straight to the seller, but rather it is being held by the impartial third party until negotiations wrap up and you’re able to finalize the contract and close the deal. This way, the seller can see that you have the money for the home, and that it will be ready to be handed over if they accept the offer. This also proves that you are serious as a buyer and have the cash to back it up. 

 

Neither party can access the money while it is in escrow. This protects the prospective buyer and the seller, because if the offer money was sent to the seller right away and you were unable to come to an agreement on terms of sale, the seller could hold the money hostage to get a leg up in negotiations. And on the other hand, a seller wouldn’t want to accept your offer without knowing for sure that you could pay for it. And there’d be no way they’d want to sign over the deed to the home until you’ve written up and sent the check. Escrow ensures that every party involved gets what they need, when they need it. This makes for a smooth, easy closing on the home. 

 

When the purchase of the home is completed, this will lead to a closing of escrow. This closing is essentially the final step in the closing process when the purchase is completed. When this occurs, a closing or “escrow officer” (often times an attorney) will oversee the final paperwork and allocate the funds to their respective deserving parties. They are also in charge of recording of deeds. They will make sure that all of the money is disbursed properly, that all necessary documents are signed and recorded, and that all the closing conditions are met before officially closing the escrow.

 

Escrow Fees

 

When going through the home buying process, paying escrow fees will be part of the deal. Typically, these services for a home purchase will run you anywhere from 1–2% of the final price. Considering the national median home value is around $226,800, this could be $2,000 to $4,000, which will be tied in with your other closing costs. But there’s some good news: the fees are totally negotiable. You can ask the other party to cover part or possible all of the escrow fees, which they may be inclined to do in order to close the deal quicker. 

 

If you are purchasing the house, you will need to deposit 1–3% of the final sale price into a joint escrow account with the seller. This is that “earnest money” check we mentioned earlier in the article. This also serves another purpose: it obligates the seller to remove the listing from the market while the transaction gets finalized. This means that no one else can swoop in and make a better offer while you’re in negotiations with the seller. This earnest money will be applied towards your down payment on the house, so it doesn’t really count as an additional fee, but you should be aware that it is possible to forfeit that money if you cannot come to a final agreement with the seller. 

 

How Long Does the Escrow Process Last?

 

Your average escrow is a period of 30 days. This is usually enough time for the title company to run the title report in search of any liens, easements, lawsuits, etc. Otherwise, how quickly the escrow process moves is all dependent on the buyer. First to be considered is the loan contingency, which automatically adds 17 days for the loan to go through the underwriting and approval process. 

 

The next factor is appraisal. If the professional appraiser ordered by the bank finds that there is a difference between the appraisal amount and the purchase price, the buyer must either back out of the sale or be required to pay the difference in cash.

 

Finally, a buyer might need an extension to complete, review, and sign off on any inspection findings. This may extend the escrow period in order for the buyer to gather additional information on the property. 

 

So in conclusion, an escrow period can last anywhere from a week (which is fairly quick) to a month, and potentially beyond depending on how much time the buyer can reasonably extend it. As a seller, odds are you want the shortest possible escrow period, so make sure that you are quick and efficient at providing any and all information that the buyer will need in order to finalize the deal. 

 

Closing Thoughts

 

Hopefully you’ve learned a lot from our crash course in escrow accounts and real estate escrow. The more you knowledge you possess about the process of home buying and selling, the easier it will be for you to negotiate in the future. 

Vince C. JR
Vince C. JR
21:44 09 Mar 23
I was in a bind and needed to sell my home quick without the hassle of someone trying to get over on me. I was approached by Frankie who works here at "We Buy Any Vegas House" and let me tell you! Frankie was not only understanding of my situation but was always on my side every step of the way. He took what was a very stressful time in my life and made this transaction as painless as it could be. His assistant Tara always got back to me regardless of what time it was and I never felt like I was in the dark. I am forever thankful that Frank reached out me and can't thank him and his team enough!
Liz Raga
Liz Raga
19:19 07 Mar 23
Horrible experience- really not professional and definitely won’t call them again to sell my house. Don’t really believe to their falls promises!
Tammy Hetrick
Tammy Hetrick
23:39 12 Sep 22
Friendly service. Great chips and salsa. We came for the margaritas. We've been here a few times for dinner and always enjoy the food.
David Stanley
David Stanley
23:05 12 Sep 22
Spam company, keeps calling and texting to buy a home that I don't own & won't stop
Mike Straub
Mike Straub
23:33 29 Aug 22
Kip came over & offered to steal my beautiful home for a terribly low price, then made an appointment to come back with his partner a few days later, but didn't show up or even call to let us know he wasn't coming
Tyler Smith
Tyler Smith
22:19 04 Jul 22
An amazing team to do business with! Highly recommend!
Tiare Johnson
Tiare Johnson
15:50 08 Jun 22
I didn’t have to worry about a real estate agent, closing costs, & a lot of things that you have to take care of when you sell a house in a traditional way. I like the fact that it was fast, easy, & everything went great! Jamie is fantastic to work with!
Christopher Jenks
Christopher Jenks
19:38 31 May 22
Very communicative and trustworthy group of professionals. The selling process was transparent and fast. Definitely worth considering...
Karen Wheeler
Karen Wheeler
18:31 22 May 22
Great team to deal with
Kailey Bowman
Kailey Bowman
07:08 22 May 22
Mo F
Mo F
23:51 20 May 22
We had an awesome experience!! Jamie Kirk is amazing and made our experience great!!
Jcbbowman1987
Jcbbowman1987
18:42 20 May 22
The best in the business!
peter maiers
peter maiers
04:13 20 May 22
Easy fast and I trusted them ever step of the way !! great team of people all interested in doing everything correctlyPeter B
Connie Bowman
Connie Bowman
02:38 20 May 22
Fantastic Company!
Britne Salsbury
Britne Salsbury
02:34 20 May 22
Casey and his team and are amazing! They are organized and have great follow up. A really great group of people to work with!
Denise Klein
Denise Klein
01:43 20 May 22
Casey Ryan is an incredible professional when it comes to the needs of sellers that need to sell their homes off market. As a real estate agent I always recommend Casey to anyone looking to work with an off market buyer. He is honest, trustworthy & always looking for win-win solutions for everyone involved! The real estate market is better because of Casey & his company, We Buy Any House
jose moran
jose moran
22:43 19 May 22
Chandler Gentry
Chandler Gentry
21:56 19 May 22
This team is so amazing! Makes everything so easy and super reliable!
Amanda Jones
Amanda Jones
21:30 19 May 22
Alex Moses
Alex Moses
20:09 19 May 22
Best company to work with in the real estate game. ABSOLUTELY BEST CUSTOMER SERVICE IVE EXPERIENCED!!
Kyle Mellies
Kyle Mellies
20:06 19 May 22
Donald Gibson
Donald Gibson
19:41 19 May 22
Great communication and pleasant to work with! Everything went smoothly!
Josh Wathen
Josh Wathen
19:40 19 May 22
The team at We Buy Any Vegas House are extremely thorough and very kind. They go above and beyond to help you through the process. I would highly recommend.
Devin Flynn
Devin Flynn
19:34 19 May 22
Jamie was an absolute rockstar for us! She went above and beyond all our expectations, do not hesitate to go with them!
Andrew Brannick
Andrew Brannick
18:12 19 May 22
Worked with Ryan on the sale of my Vegas property, I thought it was going to be a little difficult being out of town in Arizona. Ryan walked me through the process of selling and was able to get me an offer that was higher than I was expecting. He handled everything for me and made the process easy and really quick which was what exactly what I was looking for! Would 100% recommend for anyone looking to sell their house
Jared Vidales
Jared Vidales
17:50 19 May 22
Great service, great pricing. Sold my mothers house to them, and they handled it with care.
Kathy Hallett
Kathy Hallett
17:49 19 May 22
Jamie immediately helped me feel comfortable and the whole process was quick and hassle free! 5 stars
Melani Kirk
Melani Kirk
17:33 19 May 22
Jake Groves
Jake Groves
16:29 19 May 22
Local to Vegas and they are the best. I spoke to every cash home buyer in Vegas. Most of them just low-balled me over the phone. Ryan met me at the property and made an offer, which turned out to be the highest. He also agreed to close with the difficult hoarding tenant still there. Jamie supported me through the escrow process, she was very responsive to any questions I had and kept me informed during the closing. Less than a 30-day escrow. I spoke to a few of the team members over two months as I was getting other offers and all of them were easy to talk to and patient. They have a great team and make sure you include them in your decision-making.Thanks againJG
Joe Skaggs
Joe Skaggs
16:14 02 May 22
S Holt
S Holt
19:49 27 Apr 22
The first person I met was Allen. He immediately made me feel comfortable and confident in dealing with this company. I'm chronically ill. Allen is the only real estate person I'd let in my home.Throughout the process I ended up dealing with the whole team. Jamie deserves a medal for the hurdles she can overcome. Ryan is great at fixing problems and handling the big stuff, with a whole lot of support from Jamie. Allen was always available for me and checking in. He is great at answering questions in a way you understand and I always felt comfortable talking to him.Here is the actual email I sent the team today: "Hi everybody. Just wanted to thank you all again. I'm already able to do so much more for myself, I feel like a new person. I love my cute little house. I love the cold. It even snowed my 3rd day here. Because I'm able to move around, go outside, see people, clean the house, run errands, etc I'm starting to walk much better and even breathe better. And I haven't even seen a doctor yet. I don't feel like I'm a prisoner in my house anymore. Just wanted to let you know how much of a difference you make."My sale hit a few snags. But I'm the end, everything worked out just as they promised, for the amount they promised. These are great people to trust. (PS… Don't worry if they use O.D. I thought it was a scam of some kind. It wasn't. I just didn't understand).
Anabel Alvarez
Anabel Alvarez
17:05 12 Oct 21
Thank you WBAVH! Charles and Ryan were professional, personable, and patient with our needs and requests. The process was a breeze and they answered all of our questions in detail. They made us feel comfortable and part of their family. Will be recommending to everyone I know!
Steven Kaplan
Steven Kaplan
07:40 18 Aug 21
jerry gallegos
jerry gallegos
16:18 09 Aug 21
Very nice and helpful, responded to any questions very quick. I will do business with them again when I buy my next house.
Christopher Kampshoff
Christopher Kampshoff
00:30 07 Aug 21
Thank you so much guys, my brother was in a tight spot I appreciate you coming through. He's in a much better situation now. Again thank you.
Kelly Brown
Kelly Brown
18:48 27 Jul 21
I attempted to work with Allen, from this company. He seemed very nice and I was curious about what their company would give me for my home, if there were no realtors commissions involved. He said he needed to see the house. He came over and took a bunch of pictures and said he would talk to his partner Ryan, (the numbers guy), and get back with me in a half an hour. I didn’t hear from him that day. The next day I received a text from him, saying he would contact me on Monday. On Monday, he texted to see if I could talk at 12:00? I said, yes, he never called. Tuesday I receive a call from a random realtor telling me that Allen’s company has referred me to him. I call Allen, of course, to ask him what the heck is going on and he says yes, I work with this realtor, but I didn’t give him your information, he pouched it from our website!! I then say, so are you going to work with me and I find out, exactly what I already knew, they couldn’t offer enough money for my house, so they are not going to make an offer, HUGE SURPRISE!! #1, if you want your personal information safe, do not work with this company and #2, if you want a good offer on your home, don’t work with this company. I bought my home 3 years ago, it’s in great condition, in a great zip code and the market is through the roof!! If you can’t buy a house and get close to what someone needs financially right now, I don’t know when you can! Pick another company besides this one!! There are many!! Stay far away from this particular WE BUY HOUSES FOR CASH!!! You have been warned!!!
Carolyn Gobel
Carolyn Gobel
18:16 22 Jul 21
This company helped keep us from foreclosure. Thank you!
Carlos Caballero
Carlos Caballero
19:15 23 Jun 21
Thank you guys for your help with my Grandmas home. It was in rough shape and she left so much stuff. We couldn’t have taken on cleaning it out and the project.
jesse phalin
jesse phalin
01:29 18 May 21
Thank you, Thank you, Thank you! Went above and beyond assisting me through this process. Helped me move my things and even let me leave what I wasn’t taking with me. Thanks for all of the hard work.
Kelly Stewart
Kelly Stewart
21:27 08 May 21
My husband handled the process but felt good dealing with this local company and they did not try to change price after seeing the house. They actually offered higher once they saw our home. Had 5 companies come our to give us bids and they all were bait and switch. They beat everyone’s offers too. We tried to list before and couldn’t sell. I don’t know why anyone would work with head aches of real estate agents and paying commissions, banks, inspectors and the time to close only to walk away with the same money. Thank you Ryan and Jamie.
degan Stewart
degan Stewart
21:23 08 May 21
Thank you guys so much. Jamie is so sweet and on it. Ryan Is one of the most genuine people I’ve met in Vegas. They did what they said they’d do when they said they would and kept us in the loop the whole time
Brian Higgins
Brian Higgins
22:00 04 May 21
Thank you guys so much for everything. Ryan and Jamie Helped me find a place to get out of our old place. It was so nice to have the moving company just handle everything for me.
Sheila Winn
Sheila Winn
19:05 09 Apr 21
I struggled with the idea of selling my house to a "flipper". This company was fair, professional and extremely helpful every step of the way. I never had to wait for a response from Kelly Schnippel when I had a question or concern.I personally would recommend them to anyone looking to get a fair price for their property all the while getting kindness, professionalism and assistance from the buyer.Thank you Kelly Schnippel! I appreciate YOU and your team!Sheila Winn
Valerie Grijalva
Valerie Grijalva
17:30 27 Feb 21
Casey and his team will handle your transaction with the upmost professionalism and class like no other. Their knowledge in real estate will exceed your expectations and you won't be disappointed from beginning to end with their communication and systems to ensure your goals are met. I highly recommend Casey and his team!
Ann Reback
Ann Reback
18:51 25 Feb 21
Thank you for your professional and personal help in this process. You and your team have been so knowledgeable, responsive, courteous and kind...understanding my goals and executing each step in a timely and professional manner! THANK YOU! I will recommend you and your team to friends and others in our community.
Aviv Ben Shimon
Aviv Ben Shimon
16:38 25 Feb 21
Jess Lapensee
Jess Lapensee
16:31 25 Feb 21
From start to finish the selling process was quick and easy!
Lynne M
Lynne M
04:52 24 Jun 20
I have nothing but positive things to say about this company! I needed to sell a house quickly after a death in my family. I spoke with several Cash for Houses Companies in Las Vegas and settled on We Buy Any Vegas House. Everyone was very sensitive about my situation, helpful, answered all my questions and extremely responsive when I called. Ryan and Kelly were awesome!After we settled on a price everything went super smoothly in escrow and again if I had any concerns or questions there was immediate feedback. Also the fact that I was able to do this remotely as I live in California was extremely helpful! I am so grateful for all the help I received during a very challenging time in my life.
Freddy Aleman
Freddy Aleman
18:47 27 Dec 19
My wife and I recently bought a home from Casey Ryan. The home we purchased is located in Centennial Hills. Gorgeous remodel. Casey and his team did a great job of designing the home. We ran into a couple of issues shortly after moving in. Casey had his people out quickly during Christmas week to make a couple of repairs. He gave my wife and I peace of mind during a chaotic holiday week and for that we will always appreciate him. I would recommend a Casey Ryan home to my friends and relatives.
Angela Rienstra
Angela Rienstra
21:06 26 Dec 19
I needed to sell my house from out of state ASAP. I looked into some other larger name companies and was disappointed with their turn-around time and lack of customer service. I'm so grateful to have found Ryan (and Kelly)! They understood my time crunch and moved heaven and earth to buy my house at a fair price and closed by the promised date. They were with me every step of the way and offered world class service! 100% would recommend to anyone!
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