The Escrow Process

What is Escrow?

The escrow  period is a crucial stage in the home buying process. It be begins once a purchase agreement is signed and ends when the buyer receives the keys to the home. The escrow period is comprehensive, involving multiple steps such as title verification, contingency removals, financing approval, and final walkthroughs, all of which will be discussed further in this article. This process safeguards both the buyer and seller by ensuring that no funds or property change hands until all conditions of the sale are fulfilled.

Opening Escrow

Once the seller accepts the buyer’s offer, the escrow process begins. Both parties agree on where the buyer's deposit will be held, and the buyer submits that earnest money deposit into the escrow account. In some areas this can be at the buyer's or seller's agent's brokerage, but it is often the title company. The escrow officer or title agent then oversees the transaction, ensuring all requirements and deadlines are met. The names "title company" and "escrow company" can be interchangeable, but are not always necessarily the same, so make sure to clarify who is handling what for you.  

Title Search and Insurance

A crucial step in the escrow process is the title search. The title company conducts a thorough examination of public records to verify that the property’s title is clear of liens, claims, or ownership disputes. To further protect the buyer and lender, title insurance is purchased to cover any future issues that may arise regarding ownership. 

There are two entities that can get a title insurance policy for the property: the buyer and the lender. In some areas, like most of Florida, the seller picks the title company and, therefore, pays for the buyer's policy. In that scenario, the buyer will pay for their lender's policy. In other areas, the buyer pays for both policies. If you're unsure which of these policies you want or need, talk to your lender and the title company for clarification, or ask Homa's AI.

Part of the title search period can also include ordering and reviewing a survey or elevation certificate of the property. Some lenders will require these and others won't, but we recommend a buyer always gets a survey if they're buying a detached home, townhome, or villa, and an elevation certificate if they are buying a property in a flood zone.

Contingency Removal

Most purchase agreements include contingencies or conditions that must be satisfied before the sale can proceed. Common contingencies include:

• Home Inspection: Ensuring the property is structurally sound and free of major issues. Make sure you get your inspections scheduled during the agreed upon timeframe at the beginning of the escrow period.

• Appraisal: Verifying that the home’s market value supports the purchase price. Have your lender order this as soon as possible so there is no delay in receiving the report.

• Financing Approval: Confirming the buyer can secure a mortgage loan. Make sure you submit all your documents and answer any lender questions promptly to stay on track so you don't invalidate your contingency. 

All contingencies must be addressed within the agreed upon timeframes, as many contracts stipulate that all negotiations and resolutions must be finalized before the contingency deadline expires. Giving yourself ample time ensures that you have room to negotiate any necessary repairs, financing adjustments, or other important considerations before proceeding. 

Final Walkthrough

Before closing, the buyer conducts a final walkthrough of the property. This is the last opportunity to confirm that any agreed upon repairs have been made and that the home remains in the expected condition before completing the purchase. For more information on what to look during your final walk through, visit our helpful checklist.

The Closing

The escrow company prepares the closing documents, ensuring all legal and financial requirements are met. If you are getting a mortgage loan, your lender will need to work with the title company to make sure both parties have the correct information. At the end of the escrow process:

• The buyer submits the remaining down payment and closing costs prior to closing.

• The buyer reviews and signs the mortgage and purchase agreements.

• The seller signs over the property title.

• The escrow company records the transaction with the appropriate local authority.

Transfer of Ownership

Once the transaction is recorded, the buyer officially becomes the new owner. The escrow process concludes with the buyer receiving the keys and the seller receiving their funds. At this point, the home buying process is complete, and the new homeowner can take possession of the property. 

Keep in mind, even if you have signed all your paperwork, the transaction is not finalized until the title company confirms they have all the funds to disburse to the seller. Until the title company tells you the transaction is fully closed, you cannot take ownership of the property. For that reason, we encourage you to send your funds in advance, sign in the morning, and don't schedule your cleaners, movers, or locksmith until later in the day or the next day. Otherwise you may run into issues with the people you've hired turning up to a home you're not legally allowed to enter yet.