What does it mean to be “in escrow?”
The escrow process begins the moment the seller accepts an offer made on their property and ends when the buyer takes the property into his/her possession. Being in escrow is not the same as an escrow account, but rather it’s the process by which a third party manages a real estate transaction until it is complete. You might also hear this escrow referred to as an EMD, or Earnest Money Deposit. To learn more about an escrow account, please read “What Is An Escrow Account, and Why Do I Need It?” to learn more about an escrow account. Click here.
They manage this by holding money and property “in escrow” until the buyer and seller close on the transaction. During this time, the buyer or seller have the option to back out if something goes awry with any of the agreements outlined in the real estate contract. This could be issues after the inspection, the appraisal coming in too low, or any possible ‘discrepancies’ on the title. When a buyer and seller first execute their purchase agreement, a third party is chosen to manage the escrow payment where the earnest money is held until the sale is closed. The earnest money held is typically between 1-2% of the final sale price; during this time, the seller agrees to take the house off the market until the sale is complete.
Why Do I Need It?
Sellers will often require an earnest money deposit as a show of ‘good faith’ – to prove that the buyer and seller intend on completing the purchase. An escrow payment is similar to a deposit, which is why it is also known as the Earnest Money Deposit. The buyer is submitting the deposit on the home to ensure the completion of the transaction. The escrow payment provides a level of security for both parties for such a large investment. The escrow is held until the transaction is complete, and the payment is commonly applied to the final closing costs.
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