“Escrow” is the formal procedure utilizing an independent third party, “Escrow Agent” to affect the transfer / sale of the terms of, or an encumbrance upon property.
Simply put, an escrow is the involvement of impartial escrow agent to act as an intermediary between the Buyer and Seller, to collect documents and/or funds for delivery to the appropriate parties upon completion of the terms and conditions of the escrow instructions or contract.
Nearly all closing costs, including the costs of escrow services, are negotiable. In Southern California the buyer and seller customarily split the cost of escrow services. The seller typically pays for the owner’s title policy and the real estate agent commissions, as well as the documentary transfer tax. (The tax can range from $1.10 per thousand to more than $8 per thousand, depending on where in California the property is located.)
California law prohibits an escrow officer from favoring the lender, the buyer, or the seller. An escrow officer’s power is strictly limited to following the escrow instructions agreed to at the time of purchase and written modifications to those instructions signed by both parties. The escrow officer does not have the power to referee disputes between the parties. In the event of a dispute the parties cannot resolve themselves, the escrow officer would stop processing the escrow until the parties agreed or a court order was received.
Important factors to consider are the level of experience of the individual who will be acting as the escrow officer, the financial strength and stability of the company and the price charged for escrow services. It would also be wise to inquire whether or not the escrow officer will be available throughout the escrow period. Another wise choice would be to choose an independent escrow company.
An Escrow Officer is only allowed to close an escrow when all deposited funds have been collected or cleared. Deposits by personal check are subject to clearance and verification of payment by the financial institution on which the funds were drawn. The check clearing process may be delayed one (1) to ten (10) business days if the check is drawn on an out-of-state bank. The Escrow Officer will request closing funds in the form of a wire transfer or cashier’s check in order to prevent closing delays.
The amount of funds requested from a Buyer for closing is based on the most current information available to the Escrow Officer at the time the file is figured. If the closing date changes or fees are revised, the Escrow Officer must have sufficient funds in the escrow to make adjustments and to pay all the closing costs. A “refundable pad” or “buffer” is used in making these final adjustments, and all unused money is refunded to the Buyer at close of escrow.
Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed with the documents being recorded in the public records, and the safe and accurate transfer of property and money has been accomplished.