Have you ever wondered how risky real estate transactions are? Buying or selling a home involves large sums of money, crucial documents and deeds that hold the right to property. Nowadays, real estate transactions are practiced through a third party, escrow in this case, which holds the funds, or documents of the property until the predetermined conditions of the contract are met. Escrow provides a secure means for real estate transactions, and ensures to protect the interests and rights of both the buyer and the seller.
The procedure for Real Estate transactions with Escrow
In real estate transactions, the escrow process begins once the buyer and seller agree to a set list of terms and conditions of the purchase agreement. The escrow holder is an unbiased third party, such as an attorney or a real estate mortgage company that is responsible to hold the sum of money until satisfied with the completion of agreement by either party. A property title search is conducted by the escrow holder to avoid suspicions, or obstacles that may hinder the transaction. Before proceeding with the transaction, the buyer has to establish surety for the property by inspecting for any repairs, issues and improvements needed. Upon reaching a decision, the buyer deposits a fixed fund amount into the escrow account termed as earnest money.
During the escrow process, the seller fulfills any required repairs and improvements requested by the buyer, whilst the buyer conducts further inspections, acquires financing either through self finances or a mortgage lender. Once the contract conditions are met by both parties, closing documents are signed by both the buyer and seller, which include the deed, the mortgage documents and title insurance policies and the sale is then closed by the escrow third party.
Upon closing, the escrow third party disburses the funds to the seller and distributes supplementary payments such as real estate taxes and commissions. The seller after receiving the funds transfers the property ownership to the buyer. Post closing the deal, the escrow third party conducts additional tasks such as recording the deed and mortgage, disbursing any remaining sum of money, and requesting title insurance policies.
Funds are held in the escrow account in case a dispute ensues over finances or repair objections. Possessions, money belonging to the buyers and documents belonging to the seller may also be returned if the dispute stays unresolved.
How long do Real Estate Escrow transactions take?
Escrow transactions involving real estate buying and selling are complex and thus the length of time for transaction closing varies depending upon the type and communication efficiency of the exchanging parties involved in the transaction. Typically, a real estate exchange without complexities may take 30-60 days from the opening of the sale to its closing by the escrow third party. Several factors determine the length of time, such as:
- Mode of financing by the buyer, self finance or mortgage financing. Mortgage financing expectedly requires a considerable time period for the buyer to obtain financing.
- Buyer contingencies that involve satisfactory home inspection, or the sale of their current home may also add to the escrow time length
- Repairs of the property may be required before the sale
- Property title issues raised by the escrow third party
- Communication between the parties taking part in the transaction
It is therefore important for the buyer and seller to communicate clearly among themselves and with the escrow third party to ensure an efficient and timely sale closing.
Escrow Fees and Who Pays?
When opting for an escrow third party service, a sum known as the “deposit protection fee” or “trust fee” has to be paid by the transaction parties, beared either independently by the buyer or seller, or shared between the two. The amount of the trust fee ranges from a fixed sum of money depending on the location or a percentage of the sale price of the property. In some provinces of Canada, such as Ontario, the deposit protection fee is limited to a certain amount only. In Ontario, the escrow fees are set at 0.5-1% of the purchase price.
It is imperative to take into account that the deposit protection fee or escrow fee is separate from other payments made by either party, including land transfer taxes, closing costs, legal fees, and title insurance. Additionally, the fees are subject to change and thus those looking into an escrow service for real estate transactions must consult a lawyer to avoid unforeseen issues.
