In almost every real estate transaction, an escrow agent is involved. This person is a third-party mutual that handles money while certain transactions are completed throughout the property buying process. This article will discuss the specific duties of an escrow agent and their purpose in real estate transactions.
What is an Escrow Agent?
An escrow agent is an individual typically involved in a real estate transaction around the time a seller accepts an offer for a property from a buyer and until that entire transaction is completed. An escrow agent is a third-party natural whose overall job is to hold onto the money and assets involved in a transaction until each party, the buyer and the seller, complete their obligations as written in a contract. The escrow agent themselves is also under the contract that protects both parties and has the best interest for both parties involved, so you can trust them with your money and assets.
Basically, once the buyer and the seller sign a purchase agreement, an escrow agent is needed and escrow begins. Then, money is transferred into the escrow account and the agent works to ensure everything is completed between both parties prior to closing. Escrow agents do more than just to keep track of money and assents though, they also help make sure additional factors of the transaction are being met such as contingencies or any necessary documentation. Some types of documentation escrow agents handle are the transfer of ownership of the property, and any documentation between the seller and the buyer that involves selling the home.
What Does an Escrow Agent Do?
There are many important escrow agent duties. As mentioned before, they are responsible for keeping track of money, assets, and any documentation between the buyer and the seller during the closing process of a property. Additionally, an escrow agent may be put in charge of conducting a title search on the property. A title search is the examination of public records on a property to determine who the property belongs to legally. This also involves collecting documents that show the history of such property, and determining if there are any claims or liens on the property.
An escrow agent may also be responsible for issuing a title insurance policy on the property. A title insurance policy basically protects lenders, anyone who issues a mortgage, or the homebuyers themselves from significant financial loss or added legal expenses in the event there is a defect in the title of a property during the transfer of ownership.
Escrow agents must follow every and all specific instruction from the buyer and sellers. Although these tasks stay pretty much the same, they can vary from each transaction. Escrow agents must be loyal to each party, the seller and the buyer, and must provide full disclosure to both parties during the entire closing process. Escrow agents must also handle all of the money and assets with a high degree of care, ensuring they are distributed and end up in the correct locations at the correct times throughout the real estate closing process.
Who Does the Escrow Agent Work For?
An escrow agent doesn’t work just for the seller or buyer, they work for both at the same time. These agents act as third-party mutuals for both the seller and the buyer throughout the ensure part of a closing transaction. Their job includes having the best interest in mind for both parties, making sure all contractual obligations are complete before funds are released or the transfer of property is made. They have the best financial interests in mind for both the seller and the buyer.
Title Officer vs Escrow Officer? How are they Different?
Although the terms title officer and escrow officer are used interchangeably because people assume they are the same thing, they actually are not. They both have very similar duties but there are some responsibilities in which the two are different. Here is the similarity between a title officer and an escrow officer:
- Both officers hold money in an account until certain conditions and requirements are met. In terms of an escrow officer, money and assets are held until all paperwork is filled out and all contingencies are met. This officer has fiduciary duties to both the buyer and the seller, not just a single party. A title officer is someone who manages money abs assets as well but in an individual’s trust. A title officer only has fiduciary duties towards one person, the person who is said to receive the money and assets in the trust once all requirements are met, also known as the beneficiary of the trust.
While their overall basic job requirement is to do the same thing, there are actually a few differences that separate an escrow officer and a title agent. Here are the differences between the two officers:
- In terms of an escrow agent in real estate, they hold money and assets until the terms from a contract have been fulfilled by both parties, meaning the seller and the buyer. A title officer holds assets until either certain services are completed in the future or a certain event happens such as a death, a birthday, a marriage, or a divorce. Title officers really don’t have much to do with a real estate transaction unless the assets happen to contain property in them, but even then it’s not so much a transaction just a transfer of the property title.
- Title officers only have the best interest of one person in mind, the trustee beneficiary, while escrow officers have the best interest in mind for both parties, the seller and the buyer. Escrow agents have fiduciary duties towards both parties involved in the transaction while title officers only really have fiduciary duties to their beneficiary.
It is also commonly mistaken that escrow agents and real estate agents are the same things. Although escrow agents are typically used in real estate transactions, they usually are an outside party separate from your real estate agent. They need to be two different people as your real estate agent has their client in their best interest. It would be contradicting to have your real estate agent as your escrow agent because an escrow agent has the best interest in mind for both parties and fiduciary responsibilities to both the buyers and the sellers. A real estate agent would be unable to do that as they have to focus on their respective clients.
What is an Escrow Agent Agreement?
An escrow agent agreement is a contract that has the purpose to outline specific terms and conditions of a transaction, or for something with a significant value. This could be assets, a bond, a deed, or money used to purchase a property in a real estate transaction. Whichever it may be, they are held by a mutual third party, or an escrow agent, until certain conditions have been met that were outlined in the terms and conditions. These terms and conditions are agreed to by both parties, and both parties are aware of what they must do before the transaction can be complete and the assets or money can be transferred.
The escrow agent is responsible for keeping track of these documents and contracts which outline the terms and conditions for the buyer and the seller. They also may be responsible for creating some of these documents or contracts in which the seller and buyer must sign. When all conditions have been completed, the escrow agent is able to transfer the money or assets to the individual who is supposed to receive them.
No matter who you are, whether you are selling or purchasing property for yourself or you are a real estate investor buying income properties, it is important to have a clear escrow agent agreement. Your escrow officer will likely be responsible for creating such terms and conditions. You should make sure these conditions are doable for both parties, and that they can be completed in a timely manner, as no one wants to wait a long time to close on a property. If you are an investor, having an escrow agent you trust will help your real estate investment go smoothly and make you the most money.
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How Does an Escrow Agent Benefits You?
There are many advantaged of having an escrow agent in real estate transactions. Below will discuss some of the most important benefits of escrow agents:
- They benefit the buyer: Escrow agents help protect the buyer when they are purchasing a property in a real estate transaction. They keep track of the entire closing process for you and let you know once the seller has completed their contingencies and the title of the property is now yours.
- They benefit the seller: These agents also have the best interest in mind for the sellers too. They help keep track of the buyer’s payments and release them to the sellers once the sale is completed.
- They protect your money and assets: These agents keep track of all money and assets involved in real estate transactions and ensure nothing will be lost or released to the other party before the proper time.
- They protect sales: While selling a property can be a stressful process, escrow agents alleviate some of this stress and protect each party from fraud or bad management.
- They make sales easier: An escrow agent is a trained professional at keeping track of money and assets. You can trust them to keep track of everything while you are going through either side of a real estate transaction. Escrow agents also are in charge of creating legal documents for both parties about the conditions that need to be met before funds and assets are transferred. They overlook everything throughout the closing process.
Should I Trust an Escrow Agent?
Although it may seem scary to leave a large amount of money, all of your assets, a deed, or a bond in the hands of someone you don’t really know, you shouldn’t panic. Escrow agents specialize in handling all of these things and make sure they don’t get into the wrong hands, or transferred too early in a transaction. They know how to keep track of certain terms and conditions and wait until these are completed to transfer any money or assets.
Escrow agents have fiduciary responsibilities to both parties. A fiduciary duty is one of the highest obligations from the law. They also have great ethical obligations as well. Your escrow agent is a mutual third party to both the seller and a buyer in a real estate transaction and has both party’s best interests in mind. They will never do anything not agreed upon by either party and will never transfer or release money and assets before the proper time.
In Conclusion
Escrow Agents are third-party mutuals who you can trust with your money and assets during the closing process in your real estate transaction. These agents have fiduciary responsibilities towards both the sellers and the buyers, so you can ensure they have the best interest in mind for both parties. Escrow agents work for both the buyers and the sellers, unlike title officers who only work for their specific client, the trustee beneficiary. You can count on your escrow agent to keep track of your money and your assets while both parties complete their parts of the terms and conditions. Escrow agents will not release funds or assets to either party before these conditions are met. They also will create a contract outlining such conditions, and each party will have to agree to the conditions before the closing process of a real estate transaction begins. Overall, keep calm and let your escrow agent handle the stress of keeping track of your money and assets when buying or selling a property.