As you know by now, I’m on a mission to bust the myth that real estate agents and their preferred service providers are sitting around in back rooms rubbing their hands together and cackling with sinister glee as they formulate evil plots to boost their own profits at their buyer clients’ expense.
In reality, what most agents want is for their buyers to get what the buyer wants — a home that is a good value, in good shape (or in the shape the buyer believes it’s in), with a smooth buying process and on-time closing.
When it comes to escrow companies, these service providers have a huge degree of influence on the buyer’s experience and the outcome of a transaction. The escrow holder’s role is that of neutral, third-party intermediary. Escrow holders are the depository (meaning they collect everyone’s funds, deeds and signatures) and the bursar (meaning they distribute all of these items, too), but they do not make any exchanges until all of the parties to the transaction — buyer, seller and lenders — give the green light to close the deal. (And in some states, the escrow companies also provide the new owner and lender with title insurance policies.)
Now, the general rule with escrow company selection is that the party who pays for the transaction’s escrow services gets to select the escrow provider. In my area, the local standard is for the buyer to pay for escrow, so my clients usually look to me to recommend a good escrow company and officer — and I know some great ones.
In this article, when I refer to "my" escrow company, this doesn’t signify any financial or other formal business relationship between myself and the company — I get no referral fee from any service providers, although it is legal to do so as long as it is properly disclosed.
I’m simply referring to my preferred escrow service providers — companies I like to work with because, well, they’re good at what they do, which makes my job easier and my client’s transaction less stressful and more likely to close on time.
As bank-owned properties have come on the scene, though, the bank/seller wants to select the escrow provider 100 percent of the time. In exchange, the bank is often willing to cover some fees that the buyer would normally pay, like the cost of the owner’s title insurance policy. (Note: A number of states are considering legislation that would prevent banks from imposing their choice of escrow company. Hallelujah.)
Since bank-owned homes are such a big part of the inventory on today’s market, and since I’ve represented lots of buyers of bank-owned properties (REOs), I’ve had many, many occasions now to contemplate and come up with the following list:
Legitimate Reasons Buyers Should Work with My Preferred Escrow Company
- They understand local tax requirements and closing calendars. If your town or state government has transfer taxes, your escrow company needs to know that. Working with an out-of-town escrow holder can result in ongoing uncertainty and surprises about how much cash you need to close. Also, local escrow holders are familiar with the local standard pace of a transaction, and know how to time their requests for homeowners association disclosures, lien payoffs and insurance documentation to avoid delays. …CONTINUED
- They are thorough to the nth degree. If the escrow holder misses one signature, omits a single line item on any of the many calculations they complete or ignores a single-page invoice, the buyer bears the likely brunt of the impact, with delays or the inconvenience and stress of having to bring more money in, after the so-called final payment into escrow had been made. This might not sound like a big deal, but for a buyer whose every possession is already on the moving truck, waiting only to be handed the keys, it is.
- They follow instructions to the letter. A good escrow company knows that when it gets a list of funding conditions from the buyer’s mortgage underwriter, it must provide every single item with surgical precision as to dollar amounts, headings and line items included and omitted. Not doing so can directly cost a buyer time, money (in the form of interest-rate lock extension and late closing fees) and the untold stress of uncertainty as to why things have been derailed. I’ve worked with more than one bank-chosen escrow company that has struggled in this area.
- They create realistic expectations. I’ve had bank-chosen escrow companies tell us that a mortgage would be funding and the transaction closing the next day for literally weeks before it actually did. My own escrow company, on the other hand, understands that buyers make their moving plans and vacation requests, among other things, based on the expectations the escrow holder creates, and takes seriously that responsibility.
- They are truly neutral. I’ve brokered deals where the bank’s choice of escrow company was clearly slanted in perspective toward the bank. They might, for example, automatically begin tabulating the contractual late fee when escrow runs over time, even when the delay was caused on seller’s side. Escrow holder bias is something a good buyer’s broker can work to neutralize, but it still has no place in a transaction.
- They are customer service-oriented. Need a courier to come pick up your deposit check? Done. Need a mobile notary to come to your office so you don’t have to miss work at signing? Done. Need the deed recorded the same day the mortgage funds? Done. Ask the bank’s escrow company to do these above-and-beyond services? Don’t even think about it.
Most importantly, perhaps, working with "my" escrow company empowers me to manage them and hold them accountable, if needed. They are already in the habit of checking in with me frequently and looking to me for direction or correction when potential problems arise. Don’t get me wrong; I’ve had decent experiences with bank-selected escrow providers, too. But I’ve also had intensely bad ones. Just think, if it was bad for me, imagine how it was for my buyer!
Appearances can deceive. It might seem like agents and escrow providers’ teamwork must have an ulterior motive, but my daily experience has shown time after time that it’s my buyer clients’ best interests that are served when our escrow holder is someone I know is on their game.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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