Your Ultimate Guide to the Pros and Cons of Escrow in Real Estate

If you’re buying or selling a home, you’ve probably been told to put your money into an “escrow” account. But, what is an escrow account, and is it a secure place to put your money? And most importantly, what are the pros and cons of escrow in real estate?

Escrow can be kind of confusing, but when you understand what it is and how it works, then you will have much-needed peace of mind in the rather hectic process of buying or selling a home.

In this article, we will go over: 

  • What escrow is and how it works
  • The pros and cons of escrow
  • How to get an escrow

Without further ado, let’s dive right in! 

Escrow Pros and Cons: What is Escrow and How Does it Work?

Escrow for real estate is the seatbelt you didn’t know you needed on a rollercoaster of real estate closing. It is a neutral third party tasked with securing assets and documents while home inspections are being completed and the deal is being finalized.

During a home sale, buyers and sellers may use an escrow account to hold and protect the good faith deposit and to be the neutral middleman to ensure all of the legal and financial paperwork is in order.

This might seem a little confusing at first, so let’s break this down.

What is a Good Faith Deposit?

Simply put, a good faith deposit is your earnest money deposit (a specific security deposit) toward your home purchase. Escrow is used to secure a buyer’s earnest money deposit until it is canceled or completed.

You can think of escrow as a bank account. You put money in the escrow account and it holds your deposits. This ensures that everyone involved, sellers and buyers alike, are financially protected.

Real Estate Legal and Financial Paperwork

When selling a home, you need to jump through a sequence of hoops that are essential to make sure all the appropriate documentation is in place before transferring funds.

If you’re like most, paperwork is the pesky little nat that keeps popping up every two seconds until you’ve finally sold the home. In other words, it’s annoying. Real Estate agents understand this. That is why they partner with escrow companies to make the paperwork process faster and easier.

To put all of this paperwork into perspective, we’ve compiled a list of the most common documents required in a real estate escrow transaction:

  1. Copy of the Offer
  2. Sellers Disclosure Packet
  3. Termite Certificate
  4. HOA Documents and Transfer Fees
  5. Contingency Removal Form
  6. FIRPTA Affidavit
  7. Prequalification Letter
  8. Proof of Funds
  9. Commission Instructions
  10. Wire Transfer Instructions
  11. Documents for Deed Transfer

As you can see, there’s a lot of legal and financial paperwork involved in buying/selling a house. And sometimes, even after you’ve done all that work, some still might back out of the deal, costing you money.

Here’s the good news: Escrow companies ensure that all parties stick to their agreed-upon terms and all the paperwork is signed and completed. With that being said, let’s talk about the pros and cons of escrow in real estate. 

The Pros of Using Escrow in Real Estate

Escrow is a LIFESAVER in the hectic process of buying and selling a home. For instance, it offers protection for all parties involved and simplifies the home selling/buying procedures.

You might be asking HOW does escrow do this? Great question!

Let’s examine how escrow offers protection and how it makes our life much easier.

How Escrow Offers Protection

Escrow offers protection for BOTH the buyer and the seller. Here’s how it works.

In the event that the sale falls through during a real estate transaction, escrow protects the buyer’s deposit. If the buyer doesn’t follow through on a purchase, then the seller gets to keep the money.

However, the buyer is also protected by the escrow because it ensures that the seller satisfies the buyer’s contingent offer, which is defined as the specific criteria that must be met in the home sale in order to proceed with the purchase.

If the criteria are NOT met, buyers are entitled to a refund of their earnest money. For instance, the criteria could be that the house appraises for the specific amount the buyer plans to borrow and the home passes the inspection.

The seller is protected in the case the buyer backs out and money-back is guaranteed for the buyer if the contingent offer isn’t met.

Escrow Simplifies the Home Buying and Selling Process

As discussed earlier, there are a lot of documents involved in real estate transactions. Especially if you are selling your house on your own, all of the paperwork can become stressful to handle by yourself. After all, you don’t want any documents to fall through the cracks! 

This is where an escrow comes in handy. 

For starters, escrow handles all of the financial and legal paperwork. This ensures that all the proper documents are signed, the correct procedures are followed, and the money deposited is protected. This is a major advantage for buyers and sellers alike! 

Now that you know the pros of having escrow in real estate, let’s see if there are any cons to escrow.

Are There Any Cons of an Escrow Account in Real Estate?

Pros and cons of escrow in real estate

With most escrow agents, documents and transaction information is pretty much out of your hands. For many, this “great unknown” can be a cause for anxiety. After all, being in the blind when it comes to your money can be a huge concern for just about anybody.

Thankfully, with top-rated escrow experts like New Venture Escrow, you can rest assured that you will have easy access to documents, pending tasks, and real-time updates.

Another downside to having an escrow account is some mortgage lenders may require you to make a larger upfront payment in order to jump-start your escrow account. 

However, at the end of the day, this bigger payment may be worth it to protect your overall real estate transaction. 

Secure Your Investment with New Venture Escrow

Throughout this article, you’ve seen how escrow is the protective father in a real estate transaction. It ensures the safety of everyone involved. Plus, it also handles all of the messy paperwork so that you don’t have to.

So, if you’re looking for a simple and efficient tool to help sell your home, an escrow account is definitely the supreme choice. 

At New Venture Escrow, we are industry experts with leading escrow VentureTrac technology that ensures your escrow process is hassle-free, controlled by YOU, and 100% secure. Contact us to learn how you can start capitalizing on all of the pros of an escrow account with your next real estate transaction.

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