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Escrow Posted On :Feb 02-2007

In many areas of the U.S., attorneys are hired to handle the property transfer process. In southern California, however, nearly all transfers are handled by an escrow holder.


An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions. People buying and selling real estate usually open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the Deed until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their agreement relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing of the transaction.


The escrow holder may be an independent escrow firm, an attorney, or an escrow officer with a bank, savings and loan, or title insurance company. Real estate transactions require a tremendous amount of technical knowledge and experience in order to proceed smoothly, and the escrow holder is responsible for safeguarding and properly distributing the purchase price. Hence, escrow officers with established firms generally are trained and experienced in real estate procedures, title insurance, taxes, and deeds. Escrow officers must also remain completely impartial throughout the entire escrow process. They normally will adopt a courteous but formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.


Anyone can list their home for sale, but getting a top dollar contract and making it all the way through escrow requires careful attention. Here are several ideas to help ensure success:

1. Request a pre-qualified buyer - Lenders will provide a letter of pre-qualification free of charge so both a buyer and seller can be comfortable proceeding, knowing that escrow won’t fail midway due to lack of income for the required financing.

2. Have the lender check the buyer’s credit up front - A history of late payments, bankruptcy, or foreclosure will almost certainly preclude the buyer from obtaining financing.

3. Have the buyer provide verification of funds - A seller has the right to know if the buyer has the necessary down payment and funds for closing costs, which can be easily verified.

4. Request a sizable earnest money deposit - Traditionally, 3% of the price is considered a reasonable deposit. Many buyers and sellers agree on initialing a liquidated damage clause to demonstrate good faith.

5. Report all disclosures up front - Make needed repairs before putting the house on the market. Avoid any last minute surprises for the buyer. Have the Transfer Disclosure Statement and Earthquake Hazard Report signed off within the first 3 days.

6. Eliminate problematic contingencies - Be certain that all contingencies can be readily satisfied. Avoid open-ended contingencies and those other than title, inspection and financing.

7. Stay in touch - Be sure that your agent communicates with all parties regularly and keeps the buyer in a positive frame of mind. Be sure to have all decision makers for the buyer see the property early on so any disagreements can be handled promptly.

Courtesy of:

Michael Edlen ~ 310.230.7373  ~ Michael@MichaelEdlen.com

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