According to Florida Realtors, there were 22,917 closed sales in August 2023. All of these buyers and sellers went through the process of coming to a purchase agreement. Part of that process may have involved escrow.
Escrow money plays an important role in ensuring a smooth and secure property transaction. But it is not a requirement, so when does it come into play?
Demonstrating Good Faith
Escrow money typically comes up once the buyer and seller have agreed on the terms of the sale. One of the primary reasons for using it is to demonstrate the buyer’s good faith and commitment to the transaction. When buyers submit escrow money, it shows that they are serious about buying the property and are willing to commit financially.
Protection for both parties
From the standpoint of the seller, the use of escrow funds offers a substantial layer of reassurance. It serves as tangible proof that the buyer is making a genuine commitment to the transaction and possesses the financial capability to finalize it. This added security instills a sense of trust in sellers, bolstering their confidence in moving forward with the sale.
Escrow functions as an impartial intermediary to safeguard the funds. This plays a pivotal role in shielding both the purchaser and seller from potential fraudulent activities or disputes, significantly mitigating associated risks.
Contingencies and due diligence
The use of escrow money often coincides with certain contingencies outlined in the purchase agreement. These may include inspections, financing approvals and other due diligence activities. Escrow ensures that the seller meets these conditions before the transaction moves forward.
Closing costs and down payment
In some cases, the escrow account may also hold the buyer’s closing costs and down payment until the closing date. This helps ensure that the necessary funds are readily available when it is time to complete the purchase.
Money stays in escrow until both parties meet all requirements. At that time, the funds go to the appropriate parties. It helps to facilitate a smoother and more secure real estate purchase process for all parties.