Congrats on your upcoming move! The closing process might seem really intimidating, especially if you are just starting out in real estate. Luckily, we’re here to make it easier for you and help you understand exactly what escrow is and how it works. By the end of this blog, you’ll feel confident in your ability to maneuver the escrow process for real estate beginners.
Basically, escrow is handing over a homeowner’s assets and documents to a third party until the sale of a home is finalized. In short, the escrow agent will make sure that all the paperwork is organized and in line for any transactions that need to happen during a home sale.
As a realtor, you can hire an escrow agent as soon as the purchasing agreements on both ends have been signed. This person will make sure that the process runs as smoothly as possible and all terms are met!
Usually, the entire escrow process can last from one to two months.
What are the Steps in the Closing Process?
Follow these steps to ensure you have a smooth escrow process when closing on a house.
1. Open Escrow Account
If you are in the process of representing someone who is buying a house, opening a real estate escrow account is one of the first things you should be doing!
This involves going to a third-party escrow company and setting up an account with them. The escrow agent will be the person in charge of all your finances, documents, and deeds during the selling and closing processes.
You should also use your realtor to help you understand what a mortgage is. Calculate your mortgage using a mortgage calculator. Later down the line, you can reverse engineer this process when you earn the majority equity in your home and are 62 or about. Check out this reverse mortgage calculator to see what you can expect in the future.
2. Make Initial Deposit
The first deposit that you’ll need to make to your escrow agent is your Good Faith Money. It’s basically paying to show that you will stay true to your word and have all your finances in line when it’s time to pay them.
The Good Faith Estimate usually accounts for costs like interest, inspections, and closing costs. Many times, it’s split between the buyer and seller and not refunded unless certain parts of the deal fall through.
If aspects like home inspections or titles don’t meet the buyer’s requirements, then they might be entitled to get their money refunded!
3. Approve Disclosures
Disclosures are written statements that the sellers create detailing anything that might be different about the house.
It is a way to create transparency between the buyer and the seller by being completely honest about anything that you might not know about the house. For example, if there are renovations that are against city code, this might be something that’s included in the disclosures!
Escrow agents are here to check that everything different about the house or land is included in these documents, and you should make sure that you sort all of this out with them before the close of your escrow.
4. Complete Inspections
There are various inspections that the buyer will need to complete before the close of escrow accounts. These include:
- Home inspection
- Environmental inspection
- Pest inspection
During this process, you just want to make sure that everything is running as smoothly as possible. If anything isn’t meeting your requirements, you should talk to the seller immediately to either get it fixed, or have its cost be deducted from the purchase price.
5. Purchase Insurance
The ones that you might need include:
- Hazard insurance
- Flood insurance
- Title insurance
The buyer should purchase all of these because they’ll insure that the house is protected under any circumstance. They’re free to choose from whatever company works best for them depending on terms, budget, etc.
There might be times where the title to the home might be offered by the escrow company that you had chosen. Always keep a look out and speak with your escrow agent to see if this is the case!
6. Get Appraisal
An appraisal is when you finalize the value of a house (and it’s usually what will determine mortgage payments). It’s the last step before you can begin to close on the home and your escrow accounts!
Appraisals are usually done by third parties, whether they be banks or lenders. They investigate all the different aspects of the home before making a final estimate of its market value. Some of the things that they take into consideration might be:
Most times, the appraisal is done right before purchase. If the final value isn’t what you initially thought, you can still try to talk to the seller to try to get a different price or conduct a new appraisal or attempt at a rebuttal with the appraiser.