An escrow is defined, under California Escrow Law: Section 17003 of the Financial Code, as a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. Simply stated, a third party, the escrow company, holds funds and documents for the buyers and sellers in a real estate transaction and makes sure that documents are properly executed and funds are dispersed correctly.
Escrow is the transitional period of the sale of the home from YOU, the sellers to the buyers. It is often stressful because unanticipated challenges can arise about the condition of the home, the appraisal or the buyers’ loan.
It begins or “opens” the day after an offer is accepted by the sellers. This acceptance is executed through the signing of a California Purchase Agreement, reflecting terms of the sale, by both sellers and buyers. In California, sellers choose the escrow company, agreed to by the buyers. YOU also choose other vendors such as pest control company, title company, home warranty, etc.
When Escrow opens, a good faith deposit of 3% is wired by the buyers, into escrow, within 3 days. Escrow Instructions are sent out to the buyers and sellers for approval which are, basically, a blueprint of the signed California Purchase Agreement or contract. A Closing or Settlement Statement is also provided to the buyers reflecting their total escrow costs, generally averaging 1 ½%. Estimated cost for sellers average between 7-8%.
The duties of an escrow holder include following these instructions in a timely manner, handling the funds and/or documents in accordance with the instructions, paying all bills as authorized, responding to authorized requests from the principals, closing the escrow only when all terms are satisfied and funding in accordance with instructions.
During this transitional escrow period, the buyers hold their inspections, read and sign disclosures from the sellers, the agents and the State as well as other required documents. Buyers are basically deciding whether to move forward with the sale while, at the same time, working to get the loan approved. It’s important for the sellers to have buyers remove contingencies promptly and on time during this period. Timely removal of contingencies strengthens the offer and moves the process along, causing less stress for YOU.
An escrow period typically ranges from 30 to 45 days, and buyers, in most areas of California, take possession of the home at the close of escrow at 5 p.m. when sellers must vacate. At that time, all personal possessions need to be removed and keys are turned over to the new buyers.
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