Closing the deal

 

What Is Escrow?

It is customary and prudent for a buyer and seller to have a third, disinterested party to assist them in carrying out the terms of their agreement. In Arizona, this procedure is known as an escrow. When opening an escrow, the buyer and seller establish terms and conditions for the transfer of ownership of property. Your escrow is created shortly after you execute the contract to purchase your home. The escrow becomes the depository for all monies, instructions and documents. The Escrow Officer has the responsibility of seeing that all terms of the escrow are carried out.

How does the escrow process work?

The escrow holds all monies, instructions and documents for the sale of your home, including the earnest money. The escrow officer takes instructions based on the terms of your purchase agreement and the lender’s requirements if the buyer is obtaining financing. The escrow officer can hold inspection reports and bills for work performed as required by your purchase agreement. Other elements of the escrow include hazard insurance, title insurance and the grant deed from the seller to the buyer. Escrow cannot be completed until the instructions (requirements) have been satisfied, and all parties have signed escrow documents.

The escrow holder’s duties include:

Serve as the neutral agent and the liaison between all parties involved.

Prepare the escrow instructions.

Request a Preliminary Title Search to determine the status of title to the property.

Comply with the lender’s requirements as specified on its instructions to escrow.

Receive and handle purchase funds from the buyer.

Prepare or secure the deed and documents related to the escrow.

Prorate taxes, interest, insurance, HOA dues (if applicable) and rents.

Secure releases of all contingencies or other conditions imposed on the escrow.

Record the deed and any other documents.

Request title insurance policy.

Close the escrow pursuant to instructions supplied by the seller, buyer and lender, if any.

Disburse funds as authorized by the instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs.

Prepare final statements for all parties involved that account for the disposition of all funds held in the escrow account.

How do I open an escrow?

Your Realtor will open the escrow for you. As soon as you execute your purchase agreement, your earnest money is given to the title company for deposit into the escrow account. How will you know where your money has gone? Written evidence of your deposit generally is included in your copy of your purchase contract. Your funds will then be deposited in your separate escrow or trust account and processed through your local bank.

Escrow Instructions

Escrow instructions define all the conditions that must occur before the transaction can be finalized. Your escrow instructions specify, in a debit and credit format, the disposition of all buyer and seller funds. They also provide for title protection for the home.

What information will I have to provide?

You may be asked to complete a statement of identity. Because many people have the same name, the statement of identity is used to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is kept confidential.

How long is the escrow?

The length of an escrow is determined by the terms of the purchase agreement. On average, it takes 30 to 45 days.  This is negotiated between the seller and the buyer when the offer is submitted.

Your Responsibilities

Your role during the escrow process should be an active one. 

Fully complete the Seller Property Disclosure Statement that your agent provided to you.

Contact your homeowner's insurance company to obtain the Letter of Experience that shows the history of any claims on your home in the past 5 years.

Provide your agent with any receipts you have pertaining to improvements or repairs to your home.  Also provide documentation of any warranties you have such as a termite warranty.

For Further Protection – Home Warranties: Home warranties have become a more popular option on homes for sale. You may wish to provide a home warranty for the buyer. Warranties typically cost $600+ for a year's coverage and generally cover limited aspects including plumbing, electrical, pest control and a host of other related areas. Buyers see this as addtional value to the home that the seller is offering.

Who Pays For What?

A major question in every escrow is: "Who pays what?" The answers vary by county ordinances and standard practices.  What is listed below are "customary" practices.  All fees charged are governed by terms of the sales contract and other written escrow instructions. 

Sellers Generally Pay:

Real estate commission

Property tax proration (to date of acquisition)

Special delivery/courier fees, if required

Document recording charges

Homeowner’s association statement fee and prorata dues

Home warranty (according to contract)

Work/repairs required (according to contract)

Matters of record against the property or seller (loans, tax liens, judgments, etc.) and fees required to clear them (statement fees, reconveyance/trustee fees and prepayment penalties)

Buyers Generally Pay:

Title insurance policy premiums (lender’s and Buyer's)

Escrow fees

Notary fees

Property tax proration (from acquisition date)

Special delivery/courier fees, if required

Document preparation fees

Document recording charges

Homeowner’s association transfer fee and prorata dues

Home warranty (according to contract)

Inspection fees (according to contract)

Lender’s new loan charges

Interest on new loan from date of funding to 30 days prior to the first payment

 

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