Escrow is a neutral third party that is there to make sure everything during the purchasing process goes smoothly, including the transfer of money and title. When you make an offer on a home, you will give an earnest money check “EMD” to be placed in “escrow.” That check is held until you and the seller close the deal. You can’t touch the money and the seller can’t touch it either.

Earnest money is also known as a good faith deposit. It is an initial deposit made by a buyer after you and the seller mutually agree to move forward with the home purchase. Usually, buyers are required to deposit their “EMD” money within three days of reaching mutual acceptance with the seller. In California it is typically 3% of the home purchase price.

Escrow protects all the relevant parties by ensuring that no funds or property change hands until all conditions in the agreement have been met. The fee for escrow services typically run about 1% to 2% of the cost of the home.

So you ask ­how does it protect buyers and sellers? Say you’re a buyer and have negotiated repairs with the seller to fix certain items that came up in the inspection, but the seller hasn’t taken care of those yet. Well, escrow can hold up the close of the sale till the issue is resolved. 

On the flip side say the buyer decides for some reason that they don’t want the house anymore and want to cancel the transaction a week before close, after removing all contingencies of the sale. This is not fair to the seller who may be packed up and ready to move out. Escrow protects the sellers from situations like these by holding the Earnest Money Deposit 3% of the purchase price in their account as an Earnest Money Deposit. When buyers back out with no legitimate reason, their deposit is put in jeopardy. We of course are giving you some examples but chances are the all parties are acting in good faith but its great to have checks and balances in place in what is likely one of the most significant purchases of your life.

Once escrow closes and all funds have been disbursed, you and the seller will receive a final closing statement in the mail. Then ca-ching you will get the keys to your new home.

Have more questions about buying a home in California? Join our Facebook Group: Professional Real Estate Advice for California Home Buyers & Sellers or reach out via email at hello@inhaus.io

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