May 22nd, 2017 5:39 AM by Jackie Graves, President
We’ve all seen the notices on top of the real estate signs in
front yards: In escrow. Although it sounds foreboding, escrow is part of the
homebuying process, and it’s designed to protect the buyer and the seller.
The more you know about how escrow works, the less daunting it
will seem. Here are some escrow basics to make your homebuying experience go
Escrow is basically a third party that will hold the homebuyer’s
money and the home seller’s deed until all the paperwork is completed. It keeps
all valuable assets with a neutral entity to minimize risks to both sides of
the deal until all contracts and agreements have been fulfilled. Those are part
of the escrow instructions that need to be followed before escrow can close and
money and deeds transfer hands.
For buyers, it’s easier to get money back from neutral third
parties than the sellers, if the deal doesn’t work out. New-home buyers need to
be sure all deposits and payments go into an escrow account and not into
the developer’s account.
Once a purchase price is agreed upon, buyers will submit what is
known as an earnest money deposit, which indicates that they are committing to
buying the home. Otherwise, buyers could make multiple commitments,
costing sellers time and money. Earnest money is usually about 3 percent of the
cost of the home. Consider it a down payment on the down payment.
For new homes, buyers will put down deposits, which are
determined by the seller and will vary based upon the price of the home. Check
with your builder for the escrow deposit amounts necessary to open escrow.
Once the purchase agreement has been signed by all parties and
the earnest money deposit received, the seller will submit all the documents
associated with the home, and it’s the homebuyers’ responsibility to understand
them clearly. Purchase agreements are often lengthy and confusing. Ask
your sales representative for a copy ahead of time, so you can be sure you are
comfortable with the entire agreement.
Look for the exact sales price and a specific deadline for the
developer to transfer the property. If that deadline isn’t met due to
construction delays, then the contract should allow you to get the deposit
back. If you’re unsure how long you will own your new home, be sure to
check whether the contract contains a clause that will prohibit you from
selling the house for a few years — especially if the subdivision is still
Be sure to do a walk-through of the home at least three days
before closing escrow and make a list of what needs to be done to the home, if
anything. Home builders today deliver homes in very good condition, but
sometimes there are items that need to be remedied after the close of escrow.
Your customer service representative will walk you through the steps necessary
to ensure that these items are completed within a reasonable time frame. Check
your purchase agreement for close of escrow conditions included in your
Escrow fees vary from company to company. The basic rate is
usually 2 percent of the sales price of the home, but firms have different
add-ons. In California, the seller selects the escrow company, and fees
are negotiated upfront. Buyers usually benefit from this arrangement by getting
very competitive escrow fees.
Remember, escrow is a financial tool that will help the
homebuying process so everyone will be happy with the outcome.
By Pat Setter - To view
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