Buying a house can be an overwhelming experience, especially for first-time homebuyers. One of the important things within the process is escrow. However, not all homebuyers understand the concept of escrow, but most have just accepted it as part of their real estate transaction.
An escrow is basically a legal arrangement wherein a third party or entity holds either the money or the property until defined contingencies or conditions are met. The escrow process starts from the time the seller accepts the offer until the buyer is able to move into the home.
Escrow comes into place in real estate transactions whenever there are contingencies that need to be resolved before closing. Typical contingencies are things that need repair; seller’s disclosures, errors in public records, and liens to name a few. Ensuring that you go through the inspection can also avoid contingencies down the line.
Whether you’re the buyer or the seller, here are a few contingent scenarios that you can do to prepare yourself to avoid or get out of escrow quicker:
Open an Escrow Account
Part of the process is opening an escrow account to hold relevant valuables, such as money and property deeds. The escrow account is managed by a third-party entity on behalf of the buyer and the seller. Once the deal pushes through the money and documents will be moved from escrow to the seller and buyer.
Not all homeowners go through the process of getting pre-approved. However, there is value to it since you know exactly how much you can afford to pay as you start looking at houses.
Obviously, the sale of a property cannot push through without the funding to be able to complete the transaction.
Inspection and Repairs
Most buyers would definitely not want to get the short end of the stick, no matter how much they love the property they want to buy. Most sales are actually dependent on this.
An inspection can uncover problems with the property and catching this on early would lead to avoidance of major repairs down the road that can cost you money. You aren’t technically required for a house inspection, but it would be best to do. Sales or offers contingent on repairs can be revised to ask the seller to cover them or negotiate for a lower price if you would be doing the repairs yourself.
Finalize and Approve Seller’s Disclosures
If you’re buying a previously occupied home, part of the process is being provided a seller’s disclosure.
Once you submit an offer, the seller is legally required to provide a seller’s disclosure. It contains undisclosed information about the property that is detrimental to the property. This includes damages to the property like water and mold damage, repairs done, hazards, HOA memberships, crimes and death on the property, liens, and nuances to name a few.
Closing Costs are part of all real estate transactions, however, when the sale of a property goes through escrow, closing costs get more expensive. The cost of inspection alone can run you a couple of hundred dollars, scale this up to all the services you would be needing as you go through the process, and if you are not mindful of your budget you might end up spending more than you can afford. Negotiating for closing costs can come in handy.
The last step that you have to go through before officially closing out on the sale is the final walkthrough. Just going through the property again and ensuring that the seller kept up their end and has everything in order before you hand over the money and you get handed the keys.
The escrow process exists to primarily protect the buyer. However, closing out the sale quicker would benefit both parties. The seller would get the proceeds of the sale quicker and the buyer would get to move into their dream home.
With all the complexities of the escrow process, the good thing is that you don’t actually have to worry about this yourself. Your real estate agent oversees this as part of the actual process. Nevertheless, with the huge investment, both financially and emotionally, that you are getting into, familiarizing yourself with the basics would be great to protect yourself.