What is the Escrow Period? A Guide for Home Buyers
The escrow period is an exciting and stressful time during the home buying and selling process. Home buyers who understand the escrow period and know what to expect while it's happening may find the escrow process to be less stressful.
What Is the Escrow Period?
The escrow period is the period of time that occurs after the home selling contract is signed, before the house transfers ownership. The escrow period begins when the home buyer writes a check for a deposit on the house. This check is referred to as earnest money.
During this time, earnest money is usually protected by an independent third party business, either a title company or an escrow company. Sometimes, the escrow and title companies perform the same functions. Escrow companies act as the stewards of the earnest money. Escrow companies also manage the documents required to purchase the home.
The escrow period usually lasts from 30-60 days. During the escrow period, the home sellers pack their belongings to move out, and work with their real estate agent to ensure that the sale of the home goes smoothly. They may also accommodate the buyers, through their own real estate agent, when they need access to the home. Buyers are also usually very busy during the escrow period. Buyer activities during this time often include:
- Get a home inspection. A home inspection by a certified home inspector can help buyers determine what kind of maintenance challenges they'll face after move in.
- Negotiate repairs. Often home buyers will negotiate repairs or a reduction in price, if the home inspection turns up major problems.
- Obtain homeowners insurance. Mortgage lenders require home buyers to get homeowners insurance.
- Get an appraisal. Lenders also require home buyers to get an appraisal, though this is sometimes handled by the mortgage lender.
- Make moving arrangements. Most home buyers plan to move as soon as escrow closes, so the escrow period is their time to secure a moving company and pack their belongings.
Also during the escrow period, there are usually various contractual buyer contingencies that will be dealt with.
What Are the Home Buying Contingencies?
Contingencies are clauses written into the home buying contract. These contingencies often enable the buyer to leave the home buying contract under certain conditions. There are three main contingencies that usually come into play during the home buying process.
The appraisal contingency may allow the home buyer to walk away from the home purchase if the property they're trying to buy is worth less than the amount they've agreed to pay. However, should the buyer still want to buy the home, the contractual contingency often has remedies for the contract to move forward. For example, the contingency may allow the buyer to make up the difference with a larger down payment. The seller and buyer may also have the ability within the contract to renegotiate the purchase price.
Home Inspection Contingency
In most cases, home inspection contingencies allow the buyer certain rights under a home inspection. Once the buyers inspection is complete, the buyer usually has the option to either ask the seller to repair certain items or ask for a reduction or credit on the purchase price of the home. The buyer also usually has the option to leave the contract should the inspection turn up items whereas the buyer no longer wants to buy the home. For this reason, many home buyers should attempt to get a home inspection as soon as possible after entering the escrow period.
The financing contingency exists to make sure that the buyer can actually fund the purchase price of the home. Finance contingencies are usually common where the buyer has to use the services of a mortgage lender. In most cases, should the buyer be unsuccessful in securing a loan for the home, the finance contingency allows the buyer to exit the home buyers contract. However, should the loan fund, the financing contingency is then lifted.
Work With Your Real Estate Agent
There are many details of the escrow period not mentioned here. It's important for both buyers and sellers to understand the entire home buying and selling process, including the escrow period. And to the end, a Litchfield by the Sea real estate agent can help home buyers navigate the escrow period successfully.