Whether you are a seller, buyer or broker, hearing the words “closing escrow” from an escrow officer are words of beauty that conjure up feelings of rainbows, puppy dogs and unicorns.
OK, maybe not unicorns, but you get the idea.
In most cases when a transaction is about to close escrow the deal is done: due diligence is complete, the down-payment, loan funds or cash are in the escrow account and the brokers involved have submitted their escrow instructions.
I just closed an escrow with my client, Kent, the seller of an office building.
It was a straightforward transaction and escrow. There were not many surprises in the process and those we had were easily mitigated. Kent is happy, the buyer, John, is happy, and so are the brokers.
With escrow coming to a close, most everyone involved in a transaction experiences feelings of anticipation, especially if the road leading up to this point has been riddled with problems to solve.
After the pleasant announcement from the escrow officer, it is usually a matter of days until her job is complete, money changes hands and title to the property is recorded in the buyer’s name.
I’ve always said, “The deal is not done until the check clears the bank.”
In reality once the check is cut by the escrow officer it is considered done because funds are coming from the title company’s trust account. The point is the transaction is not complete until the escrow closes. I have had a transaction delayed several weeks the day we were supposed to close escrow.
My transaction with Kent was delayed a few weeks, which does occur often in a transaction, just not usually at the very last minute.
We had become aware of the potential delay from the buyer’s broker several weeks in advance. Our delay was caused by the buyer’s lender and the need for additional studies to be performed on the property — lenders tend to do this sort of thing.
The escrow process begins
After negotiations were complete between Kent and John through me and the other broker the purchase agreement contract became ratified. The buyer’s broker opened escrow with the escrow officer at the title company and a copy of the purchase agreement contract was provided. The buyer’s deposit was sent to the escrow officer to be deposited.
Once escrow is opened I receive an open order sheet with everyone’s contact information and the escrow number. As the listing broker I submit my general terms of the purchase agreement from the seller’s side of the transaction.
These terms usually include a timeline of the transaction and expected fees paid by each side — the seller and the buyer. Then the buyer’s broker does the same thing and hopefully the two match.
So what exactly is an escrow and why do we need one?
Why can’t the buyer and seller just write a check to each other and the other parties involved and be done?
In Part 2 we will discuss how everyone’s interests are protected as we lead to a successful closing.