Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report

Is the visa process deterring international students?

Nov 14, 2019

Latest Episodes

Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace Morning Report
Download
HTML Embed
HTML EMBED
Click to Copy
Download
HTML Embed
HTML EMBED
Click to Copy
Make Me Smart with Kai and Molly
Download
HTML Embed
HTML EMBED
Click to Copy
Marketplace

Educating Rico: What’s an escrow?

Marketplace Staff Jun 15, 2007
Share Now on:
HTML EMBED:
COPY

TEXT OF STORY

TESS VIGELAND: The cracks are getting bigger in the foundation of the nation’s housing market. Foreclosures and mortgage delinquency spiked in the first quarter. And mortgage interest rates are at their highest level in almost a year. But folks are still buying homes.

Our own Rico Gagliano’s been tagging along with a friend who’s getting into the L.A. market. They’ve gone through everything from picking a real estate agent to finding the right mortgage. Today, Rico gets educated about a very important and mystifying word in the real estate business.

RICO GAGLIANO:
Hi, I’m Rico. Last time around, my pal Rick had found the loft of his dreams.

Now, he just has to survive a few more weeks of living with his current roommates.

RICK:
We’re out in a little garden section in front of where I live. And, well, my roommate has left out here his plastic containers supposed to keep cereal fresh. And it is home to a colony of itlooks like hundreds of moths, have used his cereal as the basis for their civilization.

RICO:
Is this perhaps one reason why you’re looking for your own pad?

RICK:
That’s one of them, yeah.

RICO:
The other reason is getting his own pad so he can spend tons and tons of money. That’s what he’s gonna end up doing today. In his hands, he holds a cashier’s check for $86,000.

RICK:
And I’m waiting for the document lady from the escrow company to turn up so I can sign the escrow papers and give them the remainder of the down payment here.

RICO:
Now, hear that word? Escrow? It occurs to me I’ve heard it all my life, and never really knew what it meant.

It’s a weird word, escrow. It stuck in my head, even as a kid when I though it was some kind of strange rutabega . . .

RICO’S MOM:
If you want dessert, you finish that escrow, young man.

RICO:
As an adolescent, it sounded like something quite different:

SCHOOL DUDE:
Dude, did you see that fight behind the library? Rostro Lucky get totally kicked in the escrow!

RICO:
So I asked Rick what the real definition is and he goes:

RICK:
Escrow is where they hold the money.

RICO:
That’s no help either. So like any good reporter, I put words in his mouth.

RICO: You give the money to a third party and they hold on to it until you complete your deal with the seller.

RICK:
Right. And then all the money goes to the seller and the escrow company takes their cut.

RICO:
Is that like a percentage of what you pay? Is that what they take, they get a commission?

RICK:
You know, actually, I don’t know how the escrow people calculate what their escrow fees are. I just know everyone has to pay them or there’s no deal.

RICO:
Well, you know, who I bet has an experts who could tell us a little bit about escrow?

RICK:
Who?

RICO:
Me, back in the studio.

RICK:
Well, let’s talk to you then.

RICO:
Thanks, Rick. And what do you know, I do have an expert right here in the studio. She’s Elizabeth Razzi, author of the Fearless Homebuyer. Hi, Elizabeth.

ELIZABETH RAZZI:
Hi there, how are you?

RICO:
I am fine. Now, I know escrow has to be a little more complicated than either Rick or I described it. Am I right?

RAZZI:
It’s frighteningly complicated. The process is different depending on where you are. In California and a couple of other states, it’s called escrow. And lot of the rest of the country, it’s just when the contract is pending. And it . . . but the point is, and it remains the same wherever you are, is this the period between the time you reach a contract and the time you hand over the keys and the money, and all of the details that are laid out in that contract get taken care of.

RICO:
Can you talk a little bit about this contract? What contract are you talking about and when does it get drawn up?

RAZZI:
Well, a buyer thinks of it as making an offer. But in fact, what you’re doing is you’re writing a contract when you make an offer to buy a home.

RICO:
So basically, when I make a bid, I do more than just say, “I offer you $500,000 for this house.”

RAZZI:
Exactly. You’re not just talking about money, you’re talking about all of the terms. You’re saying that I want to close it in 10 weeks. I expect to see the curtains and the drapery rod still there. I expect to see the chandelier in the dining room.

RICO:
Is this also where I hear about these mythical things called “inspections” happen?

RAZZI:
Yes. You ask for any inspections that you want in that purchase contract. And during that escrow period, or when it’s under contract, that’s when you get the inspections taken care of and you have any repairs made that are called for from those inspections. You get your mortgage finally approved. All of those things happen then.

RICO:
Now obviously, we are in a buyer’s marketm so I imagine buyers now have an upper hand when drawing up this contract. But I’ve heard nightmare stories about what happens in a seller’s market, you know, where they only accept your bid if you like, agree not to rip down the doghouse in the backyard. Are these true?

RAZZI:
In the seller’s market, there were really a lot of, I think, they’re abusive practices. You know, saying, “I’ll only sell you my house if you have no contingencies.” Right now, buyers have the upper hand and you can ask for these really common sense protections.

RICO:
So, going back to this period, which here in California we call the escrow period – so I hand my money over to this third party, and if any of these conditions that have been laid in the contract aren’t met, or if the inspections turn out bad stuff, I can pull out of the sale? Is that the idea?

RAZZI:
It all depends on how your contract is written, whether you can just pull out. Sometimes, it’s written so that the seller has an opportunity to fix things and not just let you off the hook.

RICO:
Can I ask, who exactly is it that is receiving my money? Who is the third party?

RAZZI:
Well, in California and other escrow states, the escrow agent holds all the money. What they do is they collect the money from the buyer and they tend to all the details and make sure all those details in the contract get wrapped up. And then once it’s all . . . the conditions are met, they hand the money over to the seller. The same process, basically, happens in other states, except there’s usually less money involved. In the East Coast, for example, you just write an earnest money check to go along with your purchase offer, and that’s not the full amount of your down payment. It could be a couple of thousand dollars.

RICO:
All right. So, how long does this period last where all of these inspections are being done and your money’s being held?

RAZZI:
It’s generally a matter of weeks. In a real boom-boom market like there was a couple of years ago, it was tough to get all the inspections and things scheduled in time for a quick closing. These days, sellers certainly wanna wrap it up as fast as possible, because they don’t want any deal to fall apart.

RICO:
No matter how long it is, though, I’m imagining that this feels like a lifetime, yeah?

RAZZI:
It sure does. I mean, nobody likes to have things unresolved, and that’s exactly what that period is. The deal can still fall apart, and that’s this concerning to the seller and to the buyer.

RICO:
Especially to Rick. The first time he tried to buy a house, it fell through during escrow – after inspectors discovered 40 grand in foundation problems. Of course, that’s nothing compared to the fear of signing on to a $500,000 mortgage – as you’ll witness in our next episode.

‘Till then, in Los Angeles, I’m Rico for Marketplace Money.

Fall of the Berlin Wall
Fall of the Berlin Wall
The financial lessons of Germany's reunification 30 years ago.  
Check Your Balance ™️
Check Your Balance ™️
Personal finance from Marketplace. Where the economy, your personal life and money meet.
How We Survive
How We Survive
Climate change is here. Experts say we need to adapt. This series explores the role of technology in helping humanity weather the changes ahead.