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A full explanation of terms

In real estate, escrow refers to the neutral third party who deals with the transaction. They help transfer the title, documents and funds for the purchase. Agreement of terms initiates escrow so that the property can be fully investigated to ensure there aren’t any liens prior to closing. 

An escrow officer holds funds during a transaction. During a home buying transaction, funds are set up to protect the buyer and the seller. The broker or lender secures the escrow agent during the real estate transaction.

Where does earnest money go?

Earnest money is provided by the buyer when a real estate transaction goes under contract. This deposit shows the seller that the buyer is serious about the purchase. If a buyer backs out of a transaction, the seller is able to keep the funds. Earnest money goes into escrow and is held by the escrow agent, or often times the Selling Realtor, until the close of the transaction. At the time of close, this deposit will be applied toward the purchase. 

Does escrow ever extend beyond the close of the transaction?

There are situations where an escrow can extend beyond the purchase of the property. Escrow holdbacks are used in situations where you want to keep your closing date but repairs need to be made that might extend beyond that date. These situations are often due to issues found during a home inspection where the seller needs to make repairs. In these situations, funds are put into escrow to exceed repair costs. The seller is incentivized to expedite repairs so that the excess funds will be returned. 

Problems that can trigger escrow holdback are often weather related or exterior issues. This could be things like:

  • Decks, patios, and porches
  • Driveways and walkways
  • Landscaping and sprinkler systems
  • Fences
  • Exterior paint

What is an escrow account?

An escrow account is often required by a lender at the time of closing to ensure funds are set aside to pay taxes and insurance. This is completely separate from the escrow process and escrow agent. This is an ongoing account that will collect part of your monthly payment in addition to your mortgage to ensure the funds are available for your annual tax and insurance expenses. This creates a safety net to ensure a homeowner has the funds saved for these larger annual expenses. 

Blue Ridge Title Company is your local Morristown attorney owned and operated title company. Our team has recently expanded to be able to better service your residential and commercial real estate needs. We are efficient, knowledgeable, and experienced in the closing process. Reach out to us for your real estate needs.