By Elliot Johnson
Preparing a client for the escrow process doesn’t have to be daunting. Going over these few steps is a great way to help them understand what escrow is and all that it entails.
Escrow is when a financial instrument or financial institution, such as a bank, lender, or credit union, acts as a third party on behalf of two other parties in a transaction. They act as a third party until they receive the proper instructions to release the obligations that both parties have. For example, if you purchase a home, but before signing the final agreements, you ask the seller to repair the roof or fix the bathroom leaks. Simply put, escrow ensures that both parties commit and execute their tasks while being held responsibly.
To further prepare your seller or client for escrow, first begin by advising them on the required documents. These typically include titles, reports, deeds, and any documents needed that are specific to the type of purchase or transaction being made. Secondly, the loan or finances being used will be reviewed to confirm that the home’s value is accurate. Often times, this may be a long step of the process. Be sure to inform your seller that you’ll keep them updated so they don’t become worried or impatient.
Furthermore, to keep your seller abreast of the situation/process of escrow, let them know that flexibility is key. For instance, if a buyer wants to view the home, sellers need to be able to quickly leave the house and leave it in the best condition possible so it looks presentable to potential buyers. In addition, if an inspector or appraiser calls, sellers will need to quickly coordinate a time that works for everyone.
When assisting clients in the escrow process, making them aware of the contingencies that come with selling a home is just as important as flexibility. It can be tough to tell sellers that their home needs some type of improvement or repairs, but being completely honest and upfront prevents any confusion about this portion of the escrow process. Contractors can inspect the home and add to a list of repairs such as loose tiles or broken countertops. Buyers can also add to this list. The end result is a contingent or contingency. This means that as the seller, they agree to repair and pay for those expenses before the buyer pays for the house. Certain contingencies also have the understanding that the buyer can agree to sign the dotted line, but aren’t obligated to pay until the seller has completed those repairs.
The “Final Walkthrough” is the last step of the escrow process. Days before the deal is closed, the buyer checks to make sure everything on their repair list is complete and to their satisfaction. If the seller failed to meet a contingency, the escrow process ensures that no monies are exchanged until both parties meet their obligations. If the walkthrough is to the buyer’s and seller’s agreements and satisfaction, everything is complete and all documents are signed, the seller’s money is released from escrow. Your client is now ready for a new chapter!
Sources: Investopedia; Nolo.com