In real estate transactions, there needs to be a way for the buyer to guarantee that the seller will indeed pay the funds agreed upon. Similarly, the buyer needs a way to guarantee that, once his or her deposit is paid, the seller will hand over the deed or title to the property. This is where escrow comes into play.

What is Escrow?

As a for sale by owner home seller, you are responsible for setting up, or opening, the escrow account. The escrow agent will be a third-party who is responsible for holding the title or deed to the property as well as earnest deposits made on behalf of the buyer. The purpose of an escrow is to hold legal documents and money until certain conditions, agreed by you and the buyer. The escrow agent will hold money and property ownership until these conditions have been met.

In many for sale by owner transactions, both the seller and the buyer open escrow accounts. There is no standard way of one or the other. Rather, it depends on what you and the buyer agree.

To process your escrow instructions accordingly, the escrow agent might ask you for several pieces of information. You might not have all the information available immediately, but you should get it to the escrow agent as soon as possible. This information includes, but is not limited, to the following:

Your (the seller) name and address

Buyers name and address

Purchase agreement

Amount of deposit

Buyers insurance agent

Lenders or other financing partys information

Termite report information

Closing date

If there is an earnest money deposit, the escrow agent will place it into a separate escrow account. The agent will then order a title search. In addition to you and the buyer, the lender will receive a report of this information. Any loan and interest fees charged by the lender will be included in the escrow instructions.

Choosing an Escrow Agent

When you are choosing an escrow agent, there are several factors that you should take into consideration. If you are working with a real estate attorney, he or she might be able to act as the escrow agent as well. In any case, here are some tips on choosing an escrow agent.

Choose a reputable escrow agent or company. Friends or family who have recently sold property are good places to get recommendations for an escrow agent. Ask the references about their experience with the agent. Did he return phone calls in a timely manner? Was he courteous and professional? Was he knowledgeable?

Choose an escrow that has experience in for sale by owner housing transactions. It is best to choose an escrow that has previously worked in a transaction in which the seller did not work with a real estate agent.

Choose an escrow with reasonable rates. Since rates vary from one company to the next, it is a good practice top shop around to get an idea of the rates that are available.

After talking with several escrow agents and getting a feel for their professionalism, experience, and rates, you are prepared to make an educated decision.