The Boston downtown condo-buying process can feel like a wild ride. And most of that ride can be pretty fun – you’re looking at Boston condos for sale online, touring them in person, and imagining yourself in your new home. What’s not as fun, though? The closing process, with its twists and turns and complicated terms. Closing on Back Bay condos for sale, especially for first-time buyers, can become a labyrinth of obscure words and processes.
That’s what this Boston Real Estate Blog is here for! We believe the role of the Boston real estate broker during this time encompasses many things, and one big one is to guide you through the closing. Whenever parties are exchanging big chunks of money, complication ensues. And that complication is there for a reason: to protect both parties in one of the biggest financial transactions in a lifetime.
That’s where escrow comes in. We hear the term “escrow” all the time, but what does it actually entail? Why does escrow become a crucial part of the closing? What does it require of both buyer and seller? Let’s decode it.
As Maria von Trapp says, let’s start at the very beginning. Escrow, in its most basic sense, entails a neutral third party holding some money (called earnest money) from the buyer until the closing process concludes. You can think of it as a miniature down payment. The buyer gives some money to the third-party company to show they are serious about buying the seller’s property. The third party then holds that money until the sale is complete or refunds the money if the transaction falls apart.
It’s really pretty simple. Escrow protects both buyer and seller as the details of the transaction are worked out. The word “neutral” here is key – the neutral third party ensures that no nefarious actions come of the transaction on either side.
For the seller, this means the buyer putting down “earnest money,” which shows that the buyer is serious about their offer and intends to follow through. If the sale falls through due to the fault of the buyer then the earnest money goes to the seller. So, buyers out there – make sure you mean it in earnest, which is literally the origin of the term earnest money. You might also hear this referred to as a “good faith deposit.” Now, the buyer and seller may both have ways to back out of the transaction where the buyer gets their earnest money refunded. It all depends on the terms written in the offer.
For the buyer, the escrow process entails allowing time for due diligence. Yes, we’re talking home inspection period here. This is the time for the buyer to investigate all the details of the sale and make sure they sign off on them before they sign off on that final paperwork. If the sale goes through, the escrow money is applied to the downpayment and/or closing costs.
If it’s your first time dealing with a real estate transaction, the closest you may have come to the term escrow could be fictional depictions on TV. “I’m in escrow!” But what does being “in escrow” mean?
Escrow funds from the buyer are due shortly after the seller accepts the buyer’s offer, typically within three business days. They stay where they are, in the hands of the third party, until closing. So when you hear folks talking about being “in escrow,” they’re talking about a specific and crucial period of time that’s often synonymous with “closing.” The rest of the down payment is due at or just before closing.
Escrow during a home purchase is different from a homeowner’s escrow account attached to their mortgage. Many homeowners have escrow accounts to help them stay ahead of property taxes. The service company managing the mortgage account will estimate your taxes and factor them into your monthly payment. Yes, that will mean a higher monthly payment, but it also means you don’t get hit with a huge tax bill in the middle of the year.
In the downtown Boston real estate market the escrow is usually held in the listing real estate agent’s escrow account. however, sometimes if both parties agree it held with the lawyers
What is escrow as it applies to Boston real estate? – You could say that escrow is comprised of three things:
- A type of bank account. An escrow account is a separate independent bank account. For the purposes of real estate transactions, the buyer can have their money held by a trusted third party. Meanwhile, the seller can proceed with the sale confident that the earnest money and down payment are waiting for them in the escrow account, and will be released to them when the deal closes (along with the rest of the funds, either from the buyer or their lender).
- A contractual agreement. Having money in escrow to buy a downtown Boston condo means that the seller must complete their end of the bargain — getting the Beacon Hill home inspected, potentially negotiate repairs, and having the title inspected as well. When we as real estate brokers say a condo is “in escrow”, we mean it is sold unless the buyer or seller backs out of the deal. If that does happen, you’ll often hear that a home “fell out of escrow”.
- A period of time. Usually, escrow lasts about 30-45 days. The word “escrow” is sometimes used to just refer to that length of time.
If you have any Boston real estate questions, please feel free to call/text me or email me at firstname.lastname@example.org