Escrow

West Coast Escrow on Larchmont

What is Escrow?

Escrow is common in the Western part of the United States. California, Washington, Oregon, Nevada, New Mexico, and Arizona are all escrow states. In the Midwest, they use title companies for closings, and on the east coast, attorneys draft the contracts. A lot of East Coasters buying in the West are surprised there are no attorneys in real estate closings here.

What does Escrow do?

Escrow is a neutral third party that serves as an intermediately between buyer and seller during a real estate transaction. Escrow handles the money and brings every piece needed to successfully close the sale.

Why do you need an escrow company? Real estate is very expensive.  Imagine the temptation for a seller to run off with the earnest money deposit or sale proceeds. Steal it or Spend it. What if the buyer’s name was recorded on the title before they paid? These kinds of disastrous mix-ups can be avoided with escrow. The buyer and seller should not deal directly but through an intermediary.

Why is Escrow so expensive?

Sometimes buyers complain that they think escrow companies are overpaid. This is because a lot of what escrow does is behind the scenes and they don’t really explain all of their services well. In truth, escrow companies do a whole lot of work to make a transaction to come together. They coordinate with all the different people involved to make a real estate purchase happen. Escrow companies coordinate with: the Buyer, the Seller, the Listing agent, the Selling Agent, transaction coordinators, the Buyer’s lender and their appraiser, the seller’s lender, the HOA if there is one, the title company, the city of Los Angeles and the state of California, the termite company, insurance company, home warranty company, and retrofit company, package shipping companies, and traveling notaries. Escrow make sure each state required item to complete a sale is taken care of before closing. Since California is a heavily regulated state, there is a lot of things that are required by law in a normal real estate transaction.

How much does Escrow cost?

Escrow is part of seller closing costs. Escrow fees are calculated by adding the escrow base fee, plus regular service fees. The base fee increases with the purchase price. The Regular service fees are set pricing. In California, escrow fee is usually split between buyer and seller each shall pay their own fee.  The escrow fee is charged once to the buyer and once to the seller. 

Escrow Base Fee:

$250-$350 Base + $1.75-$2/100 on transaction amount.

Escrow Service Fees:

 $200 Doc Preperation Fee
$100 Processing Fee
$150 Messenger Fee
$250 Notary Fee
$50 Wire Fee (Seller)
$350 Loan tie in fee (Buyer)
$150 Recording fee (Buyer)

 

Seller Escrow Fees

Buyer Escrow Fees

Escrow fees range from one to two thousand dollars for sales up to $1,000,000 and only a few thousand more for multimillion sales. The most I would expect to pay on an escrow for a transaction of any size is $6,000. The best practice for buyers agents filling out a purchase agreement is to use the language “each shall pay their own fee” for escrow fee.

Paragraph 4 C of residential Purchase Agreement “Escrow And Title”

For the second line Escrow Holder Shall be- It is almost impossible for the buyer to select the escrow company. I have never heard of it. The seller will reserves the right to select services for escrow and title which is customary.  Think of it as a home court advantage. Sometimes you can get your title company if you ask, but not escrow. Escrow companies are suppose to be neutral, but in reality they do play favorites within the boundaries of the rules. One example would be an escrow officer having a conversation with the buyers agent, then when they get off the phone, immediately calling the listing agent to report. 

Escrow Instructions

Sample Escrow Instructions

Escrow reviews the purchase agreement and then produces escrow instructions that outline the details of the sale. Buyer and Seller receive a copy of the escrow instructions within a few days of escrow opening. Review and sign these right away, or it might hold up the sale. Any change to the instructions, such as an escrow extension or a seller concession, must be made with an escrow amendment signed by both parties.

How Does Escrow Work?

Escrows can vary in length – the average is 30-45 days, anything quicker than 30 days is a fast deal, and longer than 45 a slow escrow. The escrow length is usually determined by the lenders. If they can lend in 30 days that is what you will see. In slow markets or very fast markets they may need 45 days to get the loan approved. 

Let’s look at a typical 30-day escrow timeline. Within the first three days the 3% earnest money is deposited into escrow, and the escrow instructions along with the buyer’s opening packager are delivered and signed. From then, the buyer’s lender will order an appraisal, and the buyer will conduct their inspections. Once the inspection period is up, it’s a waiting game for the loan to get approved. Within 5 days of closing, the buyer may conduct their final walk through. The day after a loan is approved the lender will send Loan Docs. Loan Docs must be signed by the buyer with a notary. The day after loan docs are received is funding- the remaining balance of the down payment must be delivered to escrow via certified check or Wire transfer. The next business day recording takes place. Once the grant deed is recorded with the county you are officially the new owner of the property. Your agent can collect the keys and any other items that pass along with the property from the listing agent and you can move in!

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