When you deal with an escrow account it usually means that you are about to close a real estate deal.
While this is the primary reason, escrow services are not just for transmission purposes. You can also set up an escrow for any transaction that puts you at increased risk.
The deal that tops this list? Buy a property. Not only is it an exceptionally expensive proposition, but the person you do business with is a stranger too.
Imagine handing someone a check to cut your savings with – just on the basis of a promise that they will sell you their house in return. For all you know, they might have disagreements about certain terms of the contract or, worse, have dubious intentions. Scary, right? This is where the Escrow comes in as your much-needed safety net.
In order to mitigate the associated risks, a neutral third party must be called in to ensure that the contractual conditions are observed by both parties.
The middleman in this transaction is also known as the fiduciary service provider.
What is escrow account?
Under the direction of a third party, they essentially act as an “intermediary” in a transaction between two parties, holding everyone accountable for the terms of an escrow agreement.
This helps avoid funny deals on either side.
The escrow provider temporarily places the assets in a transfer account until the transaction is completed. Both the buyer’s and seller’s assets are protected as they are entrusted to a neutral provider – out of the reach of itchy fingers.
Unlike the law firm you’ve appointed to represent you, they’re not concerned with who can get away with what until the deal is closed.
Only when all contractual conditions have been met will the money be released from the escrow account to the seller. At the other end of the deal, the buyer receives the title deed and / or keys to the house as the new owner of the property.
When are escrow services needed?
In addition to buying a property, you can use escrow services for any transaction where you need an impartial party to oversee a payment exchange. Business transactions are a good example.
This ensures that everyone involved must adhere to the rules they have agreed on.
Fun Fact: It is a legal requirement to hire a promotional attorney and set up an escrow when entering into a real estate transaction for private real estate transactions.
Some other common scenarios that require an escrow account are:
- Business Owner: Ordering a large shipment online can easily be fraudulent. Parking the payment in an escrow account holds both the buyer and seller accountable until all obligations are met
- Landlords and Tenants: In more extreme cases of rental disputes, a tenant may need to set up an escrow account to ensure that certain repairs are carried out by the landlord
What does a typical fiduciary process look like?
For example, let’s say you want to buy a condominium that is under construction. You signed the sales contract and named a law firm to represent you. The law firm will set up an escrow to facilitate this purchase.
The attorney’s duties include:
- Draft terms and conditions in the trust agreement
- Make sure the property’s timeline is okay
- Timely payment at each progressive phase of the construction of the apartment
For example, an escrow officially ends when all conditions are met, the money is paid to the seller, and the title of the property reflects the name of the buyer.
Who provides escrow accounts?
If you’re not sure where to start, you may be surprised that escrow accounts can come from a variety of sources.
You can find escrow accounts from these service providers:
- Law firms
- Banks
- Singapore Law Academy
What do escrow services cost?
It depends on the type of property you are handling as well as who you have hired for the submission process.
If you have appointed HDB as your representative, you can calculate the estimated legal costs here.
However, if you’re buying private property, delivery fees (including attorney fees, stamp duties, and labor) can get you back $ 2,500 to $ 5,000.
