The phrase elicits excitement when it gets mentioned over mimosas at brunch and it’s commonplace on HGTV, but what the heck does being “in escrow” actually mean. In part 1 of Buying a House 101, I’m going to break it down for you in easy, digestible bits so you can be better informed and feel more secure about embarking on your quest for a home in Los Angeles.
Being in escrow means that the following things have happened:
- Seller has accepted a buyers offer
- Buyer has delivered their good faith deposit to an entity also called escrow
This is where a lot of confusion happens because being “in escrow” is an act (see above), an account and also an entity–an office staffed by licensed escrow officers who help pilot the purchase of a property from start to finish. Escrow the office is a neutral entity typically selected by the seller’s side. Some escrow company’s, like some real estate agents and lenders, are total rock stars. Others are so incompetent that they put a dark cloud over the home buying process.
When a seller accepts a buyer’s offer, the buyer needs to delivery a contractually obligated good faith deposit, usually 3% of the offer price ($500k offer price, 3% = $15k good faith deposit) to escrow’s escrow account by wiring it in or dropping a check off at their office. Once this happens, escrow is considered “open.”
Escrow also generates “escrow instructions,” or paperwork that reiterates what’s on the accepted offer, orders reports required or requested by the seller and buyer and shares those items with both sides, works with lenders for the seller and buyer to facilitate the transfer of funds and play a key role in making sure both sides stay on track with timelines and delivery of contractual items.
On day 30 of escrow, upon recording confirmation from the city, they get to notify both sides that escrow has closed and the property has sold. Closed escrow = closed sale, buyer now owns the house. See! Not so complicated 🙂