The Role Of Escrow In Pennsylvania
Escrow is essentially the deposit that the buyer is going to put down to secure and support the offer that they made to purchase. If you’re offering $200,00, you may put $5,000 down to present your offer with all the terms and conditions therein. The seller will then accept your offer and take your $5,000 as a security deposit. If you don’t do what you agreed to do, the seller then keeps that $5,000 for your failure to perform. Similarly, if the seller backs out of the agreement, they would forfeit the $5,000.
There are times that a buyer won’t accept an escrow amount that’s proposed if it’s too low, because they would have to take the property off the market on the belief that they’re going to sell it pursuant to this agreement. If the agreement is for $200,000 and somebody puts down $1,000, the buyer may be more likely to walk away from that $1,000 than a greater amount. Common sense would dictate that one would be far less likely to walk away from $10,000, for instance.
If you construct the contingencies in the agreement of sales correctly, the deposit really isn’t at risk based on the needs that you have as a buyer. Those contingencies are put in the agreement accordingly.
The Escrow Agent
The escrow agent is typically set up and defined in the agreement of sale, but it can be redefined. There’s default language in the agreement, but you can define whomever you wish to be the escrow agent.
If you’re doing a private sale, you could define your real estate lawyer as the escrow agent, but that would be stated within the agreement of sale so that both parties are aware and in agreement to it when the agreement is signed.
The Pre-Closing Phase
Before you close on a property, you’re going to do things during the pre-closing phase which include…
- Negotiate the findings of the inspection,
- Resolve any necessary repairs,
- Title search,
- Title insurance report, and
- Gathering information for settlement sheet.
Doing a house inspection is an important part of the pre-closing phase. Any issues that arise as a result of the inspection will need to be repaired prior to closing. Negotiating who will be responsible for those repairs is going to be your next step. Many times, the seller will agree to make repairs, but the buyer may also prefer to make certain repairs on their own.
You will also be obtaining your appraisal during the pre-closing phase. In addition to determining the appraised value and, therefore, the ultimate numbers of your loan, you may need to make some repairs due to the appraisal. If you’re financing through a program such as FHA or VA, some repairs may be required by the lender as a result of your appraisal. These repairs must be resolved prior to closing to the lender’s satisfaction.
The title search and title insurance report will also take place during the pre-closing phase. This is where you will be identifying and resolving any issues with the title, such as tax liens, obtaining tax certifications, or reviewing any easement or deed restrictions to ensure your title is free and clear and you’re still willing and able to move forward.
Pre-closing is also the time where you’ll be gathering information to prepare the settlement sheet that both sides will review prior to settlement. It gives everybody the opportunity to review the settlement with or without their attorney and/or realtor. The settlement outlines the case, the amount of the loan, and anything that is being paid off as a part of the transaction. It shows the buyer what they need to bring to closing and shows the seller what they’re going to receive at closing.
Pre-closing is an extended area of negotiation even though you already have a signed agreement, per se, in the sense that the agreement can be modified or amended as things arise. The agreement may also be terminated due to any issues identified throughout the pre-closing phase with regards to the inspection, appraisal, or title search.
Listing Agreements, Agreements of Sale, and Custom Agreements
The standard listing agreement contract typically deals with the marketing of the property and is between the seller and the seller’s real estate agent.
The standard agreement of sale is a document that gives you all the flexibility you need to address all of the issues that arise for whichever party is in a real estate deal. It’s a document used by the realtors and curated by the real estate attorneys.
Typically, the buyer is the party that would use whatever agreement of sale to make an offer to the seller. The seller chooses whether or not to accept the offer based on the terms and conditions of that offer.
A custom agreement may be required in certain circumstances. For example, if there are farm crops on the property, you will need to determine who owns the farm crops after the sale. Does the farm who planted the crops have any rights to the crops and, if so, how does that play out moving forward? There are many unique situations like this one that may require a custom agreement.
While there are standard forms for a lot of things, sometimes it might be easier to just draft it as a custom agreement depending on what each of the parties needs for their specific purposes.
An agreement will typically have contingencies that include things proffered by the buyer and accepted by the seller. If the buyer offers the contingency that they can have an inspection done on the property and the seller agrees, the buyer is able to get an inspection that may reveal issues that need repaired.
The buyer can then go back to the seller with the inspection and assert that they believe the seller should cover the repairs. If the seller doesn’t want to cover those repairs and feels that they can find another buyer, they’re able to then refuse to make those repairs. The buyer can then choose not to move forward with the transaction or they can choose to move forward in the knowledge that they will need to make the repairs themselves.
In a sense, the seller is using the buyer’s contingency to control the transaction from their own standpoint. The contingency allows both parties to back out of the deal, but the retention of the deposit typically plays into a lot of these cancellations of agreements, as well.
With the guidance of a skilled attorney for Real Estate Law Cases, you can have the peace of mind that comes with knowing that we’ll make it look easy.
For more information on Real Estate Law in Pennsylvania, an initial consultation is your next best step. Get the information and legal answers you are seeking by (717) 990-7178 today.
Taking care of the legal side of things today will make it so much easier to prevent disputes tomorrow Call Us Now (717) 990-7178