Wondering what you need to know about escrow? Buying a home or business is an exciting time, but it also involves many steps, which means it can be stressful too. One of the first things is to get your finances in order so you can open an escrow account for the big day when you’re ready to move forward. To avoid mistakes when making a major purchase, you’ll want to understand the process so that you’re prepared when the time comes. With that in mind, here are some common questions and answers to help you get started on this journey with confidence.
1) What is an escrow account?
Escrow accounts are a type of third-party, fiduciary account where money is held for safekeeping. They are usually used when there’s a lot of financial risk involved for both the buyer and the seller. Most often, these accounts are needed when buying or selling real estate, or even a business. When someone makes a large purchase, they often need to put down some form of deposit. Without an escrow account, they would be taking a big financial leap of faith. But there’s also risk for the seller, too. That’s why a neutral party is brought in to make sure the exchange is fair.
2) How does it work?
So how does it work? Well, funds are safely held in a third-party account and only released once all obligations are finalized by the seller. In this way, it’s possible for the seller to receive payment from a neutral party and reduce their risk, while the buyer also eliminates the threat of being cheated by someone dishonest who runs off with their cash. The seller isn’t payed until the buyer has received what was promised in the contract they both signed.
3) Is it required?
While these types of accounts aren’t always required, they’re always a good idea when it comes to major financial transactions. Whether you’re buying or selling, it’s just not worth the risk of trying to handle things on your own. The financial consequences are simply too high.
4) What does it mean to be “in escrow”?
Being “in escrow” means that the house or business is currently under contract, but not yet officially sold. The buyer has put down a deposit to show intent to buy the property and the seller agrees to not sell it to anyone else for a specific period of time. If both parties are satisfied and the loan is approved, then the deal goes through without any problems. The escrow company then transfers the funds to the seller and everything is finalized.
Do You Need an Escrow Account?
Buying a business or a home is an exciting adventure. To be sure you’re making the best decisions for your future, it’s important to financially protect yourself by selecting a reputable escrow company like Bay Area Escrow. We’re here to walk you through the process—step by step.
If you have any questions or concerns about how escrow accounts work, or you’re ready to schedule escrow services, give us a call at (925) 831-9099!