The Role of Escrow in Private Sales: Why It Is Still Essential
In the realm of private sales, buyers and sellers often eschew many of the steps and procedures taken during sales between strangers. However, even if you are engaging in a private sale with someone you know well, it’s important to protect both parties’ best interests by using escrow. Escrow is a neutral third party that holds parties’ funds and ensures that both parties are protected until the sale is complete. Even if it takes a bit more time or money to utilize an escrow service, doing so can save you from significant financial losses should the sale fall through.
Trust and Safety for Both Parties
One of the main benefits of escrow is its ability to provide trust and safety to both parties in a private sale. Buyers can put their earnest money into escrow and know that the home is being held for them while they go through the other steps needed to verify that the home is ready for purchase. Throughout this process, they know that the money is inaccessible to the seller until the terms of the sale have been met. Sellers also get peace of mind from the use of escrow in a private sale. They can rest easy knowing that the funds are being held for them and that they aren’t being hustled by someone with no intent of following through.
On both sides, using escrow protects against fraud, misrepresentation of home availability, or misrepresentation of availability of funds. Beyond intentional fraud and misrepresentation, escrow also protects against the wide range of reasons home sales can fall through. It ensures that there are strict requirements that must be met before either the seller gets the money they’re owed or the buyer can get their money back.
Streamlining the Transaction
Buying a home or commercial property involves an enormous amount of paperwork and money. Trying to navigate this without the help of a neutral third party can result in missed deadlines, paperwork being overlooked, and funds languishing in the buyer’s bank account. Escrow agents handle the flow of money and documents, ensuring that all involved parties get access to paperwork when needed and that important deadlines are met to facilitate a speedy closing.
One of the primary benefits of using escrow is the way it streamlines the handling of paperwork and money. This eliminates the administrative burden placed on both the buyer and seller. It also limits the need for contact between them involving the transaction, limiting the risk of misunderstandings or miscommunications. Whenever you can foster transparency in a major sale, you improve the entire experience for everyone involved.
Giving Both Parties Legal and Financial Security
Not only does the escrow agent help limit the amount of time both parties spend on paperwork and other tasks, but they also provide both parties with significant financial and legal security. Escrow agents have a fiduciary duty to both parties in a sale, so they must act impartially and in a way that protects both parties’ best interests. They are bound by their duty to act within the terms of the escrow agreement.
How does escrow provide both parties with financial security? It ensures that funds are not released until the terms of the sale are met. For example, this ensures that a buyer who put money down in good faith can get their earnest money back if the seller grossly misrepresented their property or never had any intention of following through with the sale. The seller cannot simply take the earnest money and refuse to refund the buyer.
On the flip side, the seller is also protected. The buyer must put down the agreed-upon earnest money before the process moves forward—and they cannot retrieve that money unless there are extenuating circumstances. Should they simply change their mind partway through the sale, they cannot withhold their money if the terms of the agreement state that they forfeit their earnest money beyond a certain point. Both sides of a transaction put in a significant amount of work in a real estate transaction, and escrow ensures that this work and time are well-spent.
Avoiding Issues with Escrow
When people do have issues with escrow, it often comes down to a misunderstanding or a failure to read the terms of a contract. It’s imperative that both parties know exactly what they’re signing, the terms they are expected to fulfill on their side of the deal, and what happens if they do not uphold their end of the deal.
As you navigate a private sale, it’s highly recommended that you work with a real estate attorney in Annapolis. Even if you opt not to use a realtor, a real estate attorney can help you avoid financially disastrous mistakes.
