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Escrow Funds

What Are Escrow Funds and how do they Work?


If you’re like me, when you are at the mechanic you have no idea what they did to fix your car. They tell me all these terms and names for the parts of the car that sound like made up spaceship parts that Elon Musk is working on. Some people feel like that when their real estate agent is talking to them. One of the main terms I see that causes a lot of confusion is the word Escrow. Whenever someone buys a home, they must put a deposit on it to secure the seller confidence they are serious about buying their home. These two deposit amounts vary depending on the area you are buying the home in. The first one is usually smaller and is given once the offer is accepted. The second one is typically larger and needed once the Purchase and Sales agreement is signed. They are held during the entire transaction and are part of your down payment. The deposits are held by the office of the agent that is selling the home or the sellers attorney if there is no sellers agent. They are stored in the brokers account that does not collect interest and are not used for anything other than holding and keeping track of these funds. During the whole transaction, these funds cannot be touched for any reason unless the contract is voided or the transaction closes.



This money is also important because not only does this money bind the purchase contracts, they also can be used as compensation for the homeowners if the buyers back out and have no reason to. This is just for wasting their time and the pivotal first few weeks of their home being on the market. A couple examples of reasons of how you can risk deposits are; If you put an offer on multiple homes and get more than one accepted, if you decide you do not like the neighborhood, if you get cold feet about making such a big purchase. Some acceptable reasons for your deposits to remain safe are; If you cannot get a mortgage or think that there is too much to do after an inspection. If you want a better chance of getting your offer accepted, then you can make your deposits higher. The higher the deposits the more serious the seller will be willing to accept your offer, but keep in mind that the same goes for lowering them.


Now with everything in life, these basic rules are not absolute. If you hired an agent that knows what they are doing, then they can almost always get your money back. It may make their reputation take a hit with other agents, but it is possible. If the seller’s agent wants to play hard ball, they can fight to keep the money. But if they know the law, they cannot hold multiple escrow funds on the same house. The listing agent must decide if the deposit is high enough to fight it in court, waste money with lawyers and precious time to sell the home. Most the time it will not be worth it because it is not in the best interest of their client, but if the deposits are $10,000 or more then it may be worth it for them.

Hopefully, next time you hear someone mention escrow funds you will know what they are talking about and maybe you can teach them a thing or two about it yourself.


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