Let’s get down to basics, what is an “Escrow”? Well it’s a legal concept in which something, whether it is a financial instrument or an asset is held by a third party, while the two parties involved in the process complete the transaction. The Escrow in essence is a deposit of funds held by an Escrow agent, and it’s used in many different trades to ensure the obligations of the parties have been fulfilled.
In Real Estate these type of documents are usually done to ensure the seller the buyer’s seriousness at the time of closing the property; however, the amount of money stipulated to be put on Escrow can change from deal to deal, and the negotiation the buyer and seller agree upon, sometimes it’s a percentage of the total amount, sometimes it’s just a quantity the seller proposes in order to feel secure and compensated in case the process goes sideways and the buyer fails to complete its obligations.
There are different uses for an Escrow in the Real Estate world, it’s not just to ensure a sale, but to complete the requirements of each part of the process, for example, if the property has a tenant, the seller can put a specific quantity on Escrow to guarantee the buyer that the tenant will be leaving in an exact amount of time, and if they fail to complete it, it will go towards the buyer as a compensation for the wasted time and inconvenience.
Don’t be afraid of it, though, if you do the process correctly, and cancel the property on time, or simply fulfill your end of the deal, you can get back your money and invest it somewhere else! The Escrow is a great document to use it if you need to ensure your deal doesn’t fall through, as it shows compromise and seriousness to the seller at the time of the first negotiation as it is the first step to take towards the closing.
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