It is unlikely there will ever be a purchase as large or larger than a home in a person’s lifetime.  And once the purchase contract is signed, confirming an agreement to transfer property ownership, there is a lot at stake between the seller and the buyer. 

For example, the sellers must demonstrate that the home is theirs to sell and that everything is as claimed.   At the same time, the buyers must verify that they have the resources to purchase the house and then be prepared to do their due diligence to ensure the value they bargained for is there.

In a real estate transaction, a third-party with no vested interest in the ownership transfer itself is there to protect the two invested parties’ interests throughout the process. That third party is the escrow service. 

The escrow service provides a means of protection in the handling of funds and documents.  It enables the buyer and the seller to transact their business through a neutral party, minimizing their risk. Escrow then protects those parties involved by retaining the money and documents until all mutually agreed-upon conditions and instructions have been met.   

Technically, the escrow provider is negotiable between the parties, but the seller determines who it will be in most cases.  Because escrow companies are a critical part of the transaction process, they are usually chosen based on their reputation of professionalism and efficiency. 

Opening Escrow.

Escrow is opened once the buyer and the seller agree on the price and conditions and execute the purchase agreement.  The buyer then has three days to make their Earnest Money Deposit into their escrow account.  The deposit is usually 3% of the purchase price of the home.  Once received, the escrow officer will then open escrow and send both parties “instructions.” 

Escrow Instructions.

Escrow instructions reiterate all the agreed-upon conditions to complete the transaction.  The instructions are taken from the purchase contract and constitute the buyer and the seller’s written statements to the escrow holder to protect each side’s interests.

Life of an Escrow.

Each escrow is unique, but all follow a common path, and all conditions are agreed upon by both parties in the purchase contract.  The standard length of time to get all investigations completed and the loan approval process in place is about 30 days.  Based on an agreement between the two parties involved, it can be longer. Only in rare cases can it be shortened, and usually, that would only be when a mortgage is not part of the deal. 

 Here is a list of the things that must take place before an escrow can close.

• The buyer makes Earnest Money Deposit with escrow and has it confirmed.
• Escrow receives and reviews preliminary title report.
• Escrow instructions are prepared and sent out for signature.
• Escrow orders, payoff demands, and, if applicable, HOA documents.
• Buyer orders and completes home inspection.
• The lender orders a home appraisal.
• Buyer and seller agents negotiate the results of the inspections and possible repairs.
• Buyer financing is processed, and escrow prepares requested documentation from the lender.
• Loan documents are prepared and sent to escrow for signature.
• Escrow determines that loan contingencies have been released and approved.
• Closing statements are prepared, including property tax and HOA assessment prorations.
• Loan Documents are signed.
• Recording documents are sent to the title company, and signed loan documents are returned to the lender.
• Buyer deposits remaining closing funds into escrow.
• Loan Funds are delivered to escrow.
• Documents are recorded.
• The escrow officer prepares final closing statements and disperses all necessary payments.

Once all escrow conditions are met, the Grant Deed and Deed of Trust are recorded by the county, signifying the title’s transfer and escrow is closed.

A good escrow service is critical to the real estate transaction.  Much depends upon their efficiency and timeliness.  As the centerpiece of the transaction process, effective communication with the sellers, buyers, agents, and the lender is essential to keep everything on track.   

Escrow service costs vary. Here in Ventura County, it is customary for the buyer and seller each to pay their own expenses.  In most cases, you can expect a base cost of $250 with the rest being rated based on the value of the home. The particulars of an escrow are standard, but how effectively the service executes them can vary.  An escrow service that communicates clearly and operates efficiently will be a key partner in the success of a smooth transaction. 

Ask us about our experiences with different escrow services, and we’d be happy to make recommendations for you.