How to Open an Escrow Account: A Complete Guide
Every journey begins with a single step. In the case of selling or buying a house, the escrow process is a big part of that. The California escrow process timeline can take up a big chunk of the closing process, so it is important to know what an escrow is and where to start on it.
The recent historically low interest rates have increased the buying power for many while skyrocketing house prices. Whether you’re looking to buy a new house, sell your old one, or are just looking to better understand escrow account rules for opening an account, this article has got you covered! We’re breaking each simple step that buyers and sellers need to know. DOWNLOAD YOUR OWN COPY OF THE INFOGRAPHIC BELOW BY CLICKING HERE!
What Is an Escrow on a House?
Before we dive into the nuts and bolts of opening escrows for buyers and sellers, we have to define what an escrow is. The base definition of escrow is the money and sensitive documents related to a real estate purchase that are held in safekeeping until the escrow process is complete.
All of those sensitive elements of any escrow process are held with a neutral third party to the sale. Over the duration of the real estate sale, the neutral third party helps move the process along.
Escrow companies have a lot of responsibilities during the closing process, including:
- Requesting documents and payments
- Ensuring parties are honest with transactions and assigned tasks
- Transferring titles and money
Why Does Escrow Matter?
The biggest concern in real estate deals is making sure that funds and documents are not at risk. Having either of those elements lost, damaged or stolen spells big trouble for those who took the risk without an escrow account.
If you were driving on the road, you would make sure your seatbelt is fastened. In real estate purchases, you should make sure an escrow is in place to keep you safe!
How to Open an Escrow In Real Estate: Steps for Buyers
1. Get the Purchase Agreement Done
Before the escrow process kicks off officially, buyers have to get the property secured. Whether it’s escrow in California or anywhere else in the U.S., the deal for a house has to be put in place between a buyer and seller.
The buyer has to come to a common price point and agree to terms with the seller, i.e. completing the purchase agreement. This is an important piece that escrow accounts for real estate need to start opening up an escrow account for you.
2. Find the Right Escrow Servicer
After the purchase agreement is secured, the next step is to find a suitable escrow service to open an account with. This process may differ depending on where you are, so be aware of any necessary actions you need to take in your area.
For instance, escrow for California homes typically require an escrow agent to help organize the escrow process for a buyer and seller.
The escrow company that is employed has to be the result of an agreement between the two parties. Both buyer and seller have to agree on an escrow company that they concur is the best for the job. Cooperation is key!
3. Make Earnest Money Payment
Once an escrow company is found and agreed upon, the next step towards fully opening an account for buyers is making an earnest money payment to the escrow servicer. Typically, this represents 1–5% of the purchase price.
Earnest money is a gesture of commitment and good faith, that shows that the deal is serious and the buyer is ready to move forward. Once the payment is received, third-party escrows will assign an official account to the buyer and seller and kick the process off.
How to Open Escrow Real Estate: Steps for Sellers
Some of the steps for sellers are very similar in the initial stages of the escrow process timeline, but there are also some differences to take note of.
1. Narrow Buyers Down and Get Purchase Agreement Done
Given the nature of selling a home, you are going to have to settle on an offer from multiple buyers looking to claim your property.
After mulling through potential offers and finding one, you should thoroughly organize the purchase agreement, confirming terms and price as soon as possible.
2. Find the Right Escrow Servicer (Again)
This is essentially the same step for sellers and buyers. Based on the consensus of both parties, an escrow company (or escrow agent, if an escrow in California home is involved) is chosen and the purchase agreement is presented to them to begin opening the escrow.
In some cases, sellers may already have an escrow agent or company in mind for the buyer and go with that one. Other times the search for a company starts from scratch.
As a seller, the main objective in this step is to come to a consensus with the buyer to get the right escrow account in place.
3. Prep for the Escrow Process
Once you find the right company to start the escrow process timeline with, the next step is starting to prepare documents and funds for the next steps. The only thing that is left before an escrow account is officially open is for the buyer to send earnest money in.
While that is happening, the best thing to do is to gather relevant documents needed once the escrow account is officially open. At the end of this process, your escrow account number is assigned and you are on your way towards closing your home!
Need Help Opening Your Escrow?
If you want to know more about all things escrow or need assistance in the real estate process, get in touch with us at New Venture Escrow. From our team of experts to resources on the entire escrow process, we offer seamless and fast service for your next home closing.
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