If you’ve ever thought to yourself, “what is escrow?” wonder no more. We’ll cover what an escrow agreement means for you as a potential home seller in this post. Doing the proper research and reading this article ahead of your home sale is the best way to learn how an escrow can benefit you and save you from potential complications.
What is an Escrow?
An escrow is a financial transaction that includes a third party, such as a bank, to ensure that both parties are committed to the deal and uphold their agreement’s end. Escrow can be an essential part of the process for home buyers and sellers who may not have committed to an agreement based on trust alone. An escrow agent will monitor the transaction progress between buyer and seller and ensure everything goes smoothly before releasing funds to either party.
The most common escrow service is when one party pays for benefits while a third party holds funds until work has been completed or until the customer has been satisfied with the results. Escrow agents typically charge fees for this service.
How Does Escrow Affect the Seller?
Escrow is a process that helps prevent the buyer from being taken advantage of. To get started, the seller will place their property in the escrow for some time, and when the buyer is ready to purchase, they’ll have to release funds back to the seller. The escrow agent will then hold on to those funds until both parties are satisfied with the purchase. This extra layer of protection allows sellers to remain confident that they’re getting fair value for their property.
What Does Escrow Do for the Buyer?
For the buyer, escrow is a means of ensuring the transaction goes smoothly. It can also help reduce fraud in an otherwise risky situation. For example, if you didn’t look up articles on “what is escrow?” and were to sell your home without an escrow account, there would be no third-party involved who can watch over your transaction and ensure that everything goes according to plan. In this case, you could lose money or your home.
But with an escrow account, you can negotiate terms while being protected by a third party. This is important because if there are any issues with the sale, the buyer and seller will both have someone on their side who will protect them from one another’s mistakes.
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