Buying real estate or acquiring another small business can be a huge step in your personal or professional financial growth. Yet, for such a monumental step, a lot of what goes into these kinds of purchases remains a mystery to most people. Working out a stress-free agreement that protects both parties, in particular, can leave even the savviest buyers scratching their heads.
One term that many prospective buyers encounter that they may not have seen before is “escrow.” This blog aims to inform you about how an escrow services agent can help your dream of buying real estate come true.
What Is Escrow and What Does an Escrow Agent Do?
Escrow is a legal binding agreement that both the buyer and seller entrust to a third party while the details of the sale are worked out or specific conditions are met. This includes the money for the purchase, documents (e.g. deed) and the property. Escrow is commonly used in home and real estate sales because of the large cash transactions involved. Escrow is most commonly used for home and real estate transactions, but are also common in construction and mergers and acquisitions.
An escrow account protects the buyer’s deposit while holding the owner’s funds designated for taxes, insurance and other matters in the arrangement. An escrow agent, or officer, is the official who facilitates the sale while keeping the interests of all parties in the agreement in good faith. Some of the duties include receiving funds for the buyer, securing deeds, disbursing funds as laid out in the escrow agreement, forwarding documents to the title company and financial institutions, and closing the escrow once all terms in the instructions have been met.
Whether you’re buying or selling, having an escrow agent monitoring the transaction affords both sides the peace-of-mind of a stress-free deal.
What Are The Benefits of An Escrow Agent?
1. They Reduce Risk
An escrow agent will organize inspections of the property for the buyer, evaluate the finances of the business it is acquiring and discuss terms of equipment purchase as part of the process. The seller will get the buyer’s deposit as a show of good faith that they intend to buy.
Whether you’re buying or selling, what you put into the agreement is protected if it should “fall out of escrow” because the other side can’t meet the conditions of the arrangement. An escrow agreement will give both sides a trusted and detailed method of payment that mitigates the risks for all.
2. Escrow Services Make Life Easier
Under an escrow agreement, there is an outside party keeping both buyer and seller moving through the steps. This means you don’t have to worry about missed payments or late fee penalties because there will be someone holding funds for you and making these types of payments on time.
An escrow officer makes the sale smoother as they have a deep understanding due to their experience. You won’t have to wonder what to do if there is an ambiguous step in the process because your escrow agent will have all the bases covered.
3. An Escrow Agent Will Have the Resources to Help You Succeed
A good escrow agent will also be backed by a good company with the knowledge, expertise, and resources to make the process easier for all. They will have contacts, protocols, and standards of practice to demonstrate to you that they mean business.
Although most escrow agents gather years of experience while on the job, some title companies, real estate brokerages, and independent escrow agencies provide formalized and comprehensive training.
Drawbacks To an Escrow Agent
The closing cost will be higher as the agent will have to take his or her commission. Another disadvantage to having an escrow account is that it limits the fluidity of your money. That means that money tied up in escrow stays in escrow where it doesn’t accrue interest and can’t be withdrawn in case of an emergency unless the terms of the agreement are met. Another drawback is that you might need to deposit several months’ worth of property taxes or funds depending on the conditions in the instructions.
Escrow Services Remove Uncertainty
If you haven’t dealt with another party while trying to buy or sell real estate, trusting them to make good on the agreement can be a risky proposition. An experienced escrow agent will take the uncertainty out by holding both sides accountable, secure the funds and deeds, and will facilitate an experience that is as anxiety-free as possible for all sides involved.
If you are considering whether to hire an escrow agent to help facilitate the next real estate deal you undertake, you have to take into account your finances, how well you budget, and your ability to save. If those areas are sound, check into several companies offering escrow services to make sure you get the right fit.