Who Opens Escrow: Seller or Buyer?

Escrow is a financial arrangement in which a third party keeps monies and transactional papers up until the time when both parties have fulfilled their responsibilities. The type of the transaction and industry customs determine who opens escrow, whether it is the buyer or the seller.

The buyer often initiates escrow in a real estate transaction by placing a predetermined sum of money into an escrow account with an impartial third party, such as a title company or an escrow agent. This cash, often referred to as earnest money or a good faith deposit, demonstrates to the seller that the buyer is committed to buying the property and may be used to defray some closing expenses in the event that the deal falls through for reasons related to the buyer.

The escrow agency or title business assumes control of the transaction after the seller accepts the offer and signs the purchase agreement. They negotiate with the lender, manage the deposit, run a title check, and prepare the closing papers. The deed and the property disclosure statement are provided by the seller, who also covers some associated costs and taxes like the transfer tax and prorated property taxes.

Escrow is also frequently used in various areas, such as e-commerce, software development, mergers, and acquisitions, to reduce risks and make sure that both sides meet their commitments. For instance, if a software license buyer wants to make sure they can access the source code and make changes in the event that the software vendor goes out of business or stops offering support, they might employ an escrow service.

A lender is a business or private person who gives money to a borrower with the understanding that the money will be paid back over time along with interest. In a real estate deal, the lender gives the buyer the bulk of the money and encumbers the property with a lien as security until the loan is completely repaid. The lender may also want an escrow account to pay for the property taxes and insurance, in addition to other documents like a mortgage or a deed of trust.

The ownership of a piece of property and any rights or liens against it are established by a title, which is a legal instrument. In order to ensure that the seller has the legal authority to sell the property and that there are no unresolved claims or encumbrances that might have an impact on the buyer’s ownership or use of the property, title searches are performed on public records. The buyer and the lender are often covered by a title insurance policy provided by the title company, which also conducts the title search and conducts the title examination.

Databases known as “title plants” hold copies of all registered documents pertaining to real estate in a specific geographic area. They are used to speed up title searches and closings and are normally maintained by title companies or county recorders. Researchers and real estate experts can make use of other information that title plants may have, such as property features, transaction history, and mapping data.