If you're a home buyer in Washington State, you might have heard the term "escrow" thrown around during the home buying process. What does it mean exactly, and how does it affect you? To better understand escrow in Washington State, you can break it up into these four components.
Defining Escrow in Washington
Escrow is an intermediary step between the purchase offer and closing. During this phase, a neutral third party holds onto funds and prepares documents for closing. It's a crucial step that ensures a smooth and fair transaction for both the buyer and seller.
Steps
Escrow starts with the earnest money check being written (or wired). This money is held in an escrow account until negotiations are finalized, and both parties are ready to close the deal.
Once the earnest money is in escrow, the agent or (escrow) company managing the process will start preparing documents for closing. This includes title-related documents, tax information, property surveys, loan payoffs, and others relating to the sale of the property. A title search will also be conducted. The search ensures that there are no liens or claims against the property that might interfere with the sale. As a buyer in Washington state, you are protected by title insurance against any of those potential liens or claims.
Closing day is when you (the home buyer) and the seller sign all of the paperwork relating to the real estate transaction. This includes paying off any old mortgage loans, signing over the deed, and signing the new mortgage note if applicable. All parties involved, including real estate agents, are paid whatever they are due.
Timeline
The escrow period can vary but typically takes 30 to 60 days. Be proactive in handling any information or document requests in a timely manner. It's also important to ask any questions you might have along the way, rather than waiting until closing day.
Satisfying Contingencies During Escrow
Contingencies are an important part of the home-buying process that can be addressed and satisfied during escrow. Contingencies are conditions that must be met before the transaction can proceed to closing. They are included in the purchase agreement and can vary depending on the specifics of the transaction.
Common contingencies include:
- Financing contingency: This contingency states that the buyer's ability to purchase the property is contingent upon securing financing from a lender.
- Inspection contingency: This contingency allows the buyer to conduct a home inspection and request repairs or negotiate the sale price based on the results.
- Appraisal contingency: This contingency requires the property to appraise for at least the purchase price.
During the escrow period, the buyer and seller work to satisfy these contingencies. For example, if the financing contingency is not satisfied, the buyer can terminate the contract and receive their earnest money back. If the inspection contingency is not satisfied, the buyer can negotiate repairs or a price reduction with the seller.
Understand the contingencies and the timeline for satisfying them during the escrow period. Work closely with your real estate agent and lender to ensure that all necessary steps are taken to fulfill these contingencies promptly.
Computation of time during Escrow in Washington
The purchase and sale agreement references the number of days for certain reviews, contingencies and conditions. To properly interpret these components it is important to understand the computation of time during escrow in Washington state.
- First day of the period is Day 0
- 5 days or less - count Business Days ONLY
- Greater than 5 days - count ALL days (including weekends)
- All periods must end on a Business Day - except "possession" can be on a weekend
- All periods end at 9pm local time
Review Form 21 of your purchase and sale agreement for more details. Talk with your real estate agent to clarify how this information impacts your purchase.
The escrow process is a vital step in the home-buying process in Washington State. By understanding what escrow is and how it works, you can be better prepared to handle the process and close the deal on your dream home. A lot may be happening parallel to the escrow process. Packing up your belongings, coordinating your move, changes of address, and all of the other complexities that come with buying a home. Partner with your Realtor to balance your obligations during escrow and needs in your personal life. Your agent will keep you on track and act as a safety net to prevent deadlines from falling through the cracks. Utilize your agent, being proactive and ask any questions you might have along the way.
