When you buy a home, one of the closing costs that you’ll see is for the escrow service. Escrow can be a scary term for some people. But I promise it’s actually nothing to have nightmares about and it’s absolutely worth paying for.
In fact, the escrow company’s role is specifically designed to protect you.
It acts as a neutral third party that holds money and important documents to ensure that both the buyer and the seller do exactly what they promised. And that protection makes the escrow service worth its weight in gold!
Here are 3 ways that your escrow company protects you:
They Prevent Fraud
The biggest obstacle to any real estate transaction is trust. The buyer has to trust that the seller will bank their money and hand over the deed. The seller has to trust that the buyer will take the deed and hand over the money.
This level of trust is a lot to ask from two total strangers, creating a big possibility for fraud. However, an escrow company takes all of this risk away from both parties – making fraud nearly impossible.
The escrow company protects the buyer from fraud by holding funds until the seller sends the deed and it protects the seller by holding documents until the buyer sends the money. Neither the buyer nor the seller have to trust each other, they only need to trust the escrow company.
They Hold the Buyer’s Deposit
When a home is purchased, most buyers will put down an initial money deposit of 1%. This earnest money deposit shows the sellers that the buyer is serious and it also activates the contracts between both parties.
The escrow company protects the buyer by ensuring that the seller doesn’t keep the deposit if the buyer backs out of the deal before the deadline.
It also protects the seller by ensuring that the buyer doesn’t reclaim the deposit if the buyer backs out of the deal after the deadline.
They Keep Payments From Going to the Seller Prematurely
Throughout the homebuying process, there are lots of important contingencies that must be met before the seller gets paid. The buyer may request repairs after the inspection process, the bank will need to give final approval on the buyer’s loan, the buyer may even have a home to sell before they agree to purchase the new one.
Escrow companies protect the buyer by ensuring that all of these contingencies are met before the seller gets paid so the buyer doesn’t pay for a home that doesn’t meet their expectations.
They also protect the seller by ensuring that all of these contingencies are tracked and documented as they are met so the buyer can’t come back later and claim that something wasn’t done.
Ultimately, I understand that most people feel overwhelmed when they see each item in the list of closing costs. I also know that the last thing you want to do is pay more than you have to, but using an Escrow company is imperative because it will protect you – as a buyer, a seller, or both!
If you’re thinking about making a move (or know someone who is), I can help! Let’s chat!
