Real estate transactions can be complicated to understand, and one of the common questions is this: what is escrow? You won’t be surprised to learn that the answer isn’t a straightforward one. Here’s everything you need to know about escrow and how it affects home sellers in Texas.
What is Escrow?
By legal definition, escrow is a legal arrangement where a third party holds a sum of money until all of the terms have been met for its disbursement. Real estate transactions rely on escrow for two main reasons:
- to keep the buyer’s good faith money (sometimes called earnest money) and make sure it’s distributed to the proper party after the terms of the sale have been met, and
- to hold funds for the homeowner’s taxes and insurance.
Escrow accounts can be managed by the mortgage servicing company, escrow companies, or title company. Lenders generally require to use an escrow account, but if you have an excellent financial profile, you might be approved to move forward without one.
An escrow account is exceptionally convenient for homeowners once the real estate transaction is complete. A portion of your monthly mortgage payment is applied to escrow and held in the account to be used for annual property taxes and homeowners insurance. This makes it easy for you, as a homeowner, to never have to think about saving for or paying those bills on your own.
Does Escrow Affect the Home Seller?
Escrow accounts are primarily used to protect the buyer and the seller’s interests in real estate transactions. When the buyer puts down good faith or earnest money to indicate that they’re serious about purchasing the home, it goes into the escrow account. Then, if the contract falls through because of any fault of the buyer’s, the money in escrow is typically distributed to the seller. The money is applied to the buyer’s down payment if the contract goes through and the home sale is completed.
The earnest money might go straight from the buyer to the real estate agent without an escrow account, but what happens if the agent takes off with the money and leaves the buyer in a lurch? A lot could go wrong if the earnest money isn’t kept in a safe place that’s neutral to both the buyer and the seller.
Joe Homebuyer Dallas Is Here
If figuring out “what is escrow” has you confused, Joe Homebuyer Dallas is here to help. We offer the fastest and easiest way to sell your home in Dallas, Texas, or the surrounding area. Our team of professional homebuyers will be with you every step of the way, and we won’t charge you a penny in commissions or fees. Simply tell us a bit of your home, and we’ll make you a cash offer in as little as 24 hours.
We can close on any day you choose at a reputable title company, and you’ll walk away with cash in hand. It doesn’t get easier than that. See how Joe Homebuyer Dallas can help you. Contact us today for an offer on your home!