What is an Escrow Deposit in a Real Estate Transaction?

What is an Escrow Deposit in a Real Estate Transaction?

An Escrow Deposit, also known as an Earnest Money Deposit, is money that a homebuyer puts down as a sign of good faith when purchasing a home.

What is an escrow deposit in a real estate transaction

Where Does the Escrow Deposit Go?

The buyer’s escrow deposit is usually held by the listing or selling real estate brokerage, title company, or attorney and will be applied towards the buyer’s closing costs.

When is the Escrow Deposit Collected?

When an escrow deposit is collected ultimately depends on the offer itself. A majority of real estate contracts have three options for a buyer to choose from.

1. It Accompanies the Buyer’s Offer
2. Upon Seller Acceptance
3. Collected within “X” Days After Seller Acceptance

Most homebuyers choose option #2 as opposed to option #1 because once an escrow check is collected it must be deposited into an escrow account. By choosing #2 the escrow deposit will only be collected and deposited if the buyer and seller come to terms.

How Much Does a Buyer Need to Put in Escrow?

The amount of an escrow deposit varies, but the average is 2% to 3% of the purchase price. However, typically not all of it is collected upfront. There is usually a small initial deposit collected, like $1,000. Then the balance of the remaining escrow deposit will be collected 7-15 days later after the effective date of the contract.

Do Buyers Have to Put Down an Escrow Deposit?

No, a buyer certainly doesn’t have to put down an escrow deposit. However, it’s unlikely a seller will accept an offer without one. Without an escrow deposit, the buyer has no skin in the game, the seller is the only one with something to lose.

Can a Seller Keep a Buyers Escrow Deposit?

Yes, if the buyer defaults there is a strong possibility the seller will be entitled to the buyer’s escrow deposit, but it depends on the contract.

If a buyer’s only contingency is to obtain financing within 30 days and they are denied within that contingency period the escrow will be returned to the buyer. However, if the homebuyer is approved for financing and on the 35th day the buyer decides to back out of the contract the seller will most likely be entitled to the buyer’s escrow deposit. Once again it all depends on how the contract was written.

Can the Escrow Company Release the Escrow Deposit to the Buyer or Seller?

If the buyer cancels the contract or defaults both the buyer and seller will need to sign a release and cancelation. The release and cancelation will state who the escrow deposit will be released to.

However, if a real estate brokerage is holding the escrow deposit, not the closing company, and it needs to be released for closing. Then most escrow brokerages will require an escrow request form to be completed and the deposit will be wired or a check will be made payable to the closing company. This isn’t something the buyer or sellers needs to sign off on.

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About the Author

Top Wellington Realtor, Michelle Gibson, wrote: “What is an Escrow Deposit in a Real Estate Transaction?”

Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.

Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.

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Michelle Gibson Wellington Florida REALTORMichelle Gibson of the Hansen Real Estate Group Inc is a full-time REALTOR who has been specializing in Wellington Florida real estate since 2001. This veteran to the real estate industry has expertise in technology, marketing and social media.

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