It is not uncommon at all for buyers to not have an understanding as to what the escrow process is during a transaction or how it all works, so I decided to post this blog to help clarify.
Escrow is a neutral third party that controls the flow of the purchase transaction. In many other states, the sale of a property is directly between buyer and seller, and may have attorneys representing both parties, but nonetheless still between buyer and seller directly.
The beauty of an escrow is that it creates a fair and impartial system of checks and balances for the purchase transaction.
Once there is an accepted offer on a property, then an escrow is openend with an escrow company. You are usually assigned a single escrow officer who is in charge of that file. There may be one or two associates or assistant escrow officers from time to time also. You are then given an escrow number from that escrow company.
During the transaction, from beginning to end, both buyer and seller need to complete certain obligations by certain dates that are written into the purchase contract. It is escrow's primary responsibility that these obligations be met in the chronological order in which they were intended.
The buyer, at each step of the escrow, will sign off on what are called "contingencies". And those are written acceptance from the buyer that they are satisfied at that point with the seller's obligation or task at that point, and wish to proceed with the transaction.
As an example, if the buyer is obtaining a loan for the transaction, their lender will send an appraiser out to the property to make sure the accepted price is fair market value for the property. If the buyer is satisfied with the lender's appraisal, then they will go ahead and sign off on the appraisal contingency and move on to the next contingency. Other contingencies include, inspection, reports, confirmation of loan, etc.
IT IS NOT UNTIL ALL CONTINGENCIES ARE REMOVED BY THE BUYER THAT THE 3% DEPOSIT IS RELINGUISHED TO THE SELLER - NOT BEFORE THEN.
So, in essence, escrow can be considered your non-biased "mediator" of the purchase transaction. We are very lucky to have this type of procedure here in California. I feel that having the buyer and seller go toe-to-toe is just a recipe for disaster, so I really appreciate having an escrow process for real estate transactions.
Watch for my article on contingencies also for greater detail on that as well.
Now play nice....................