In a property transaction, there’s a lot at stake. To ensure the seller keeps to his end of the bargain, setting up an escrow would hold both parties accountable until the terms of the contract are fulfilled.
Dabbling with escrow typically means that you’re about to enter into a real estate deal.
While it is the predominant reason, escrow services are not solely for conveyancing purposes. You could also set up an escrow for any transaction that opens you to heightened risk.
The deal that tops that list? Buying a property. Not only is it an exceptionally expensive affair, but the person you’re transacting with is also a stranger.
Imagine handing someone a cheque that has the power to drain your life savings — just based on a promise that in exchange, he will sell you his house. For all you know they could have disagreements to specific terms in the contract or worse, harbour dubious intentions. Scary, right? This is where escrow comes in as your much-needed safety net.
To help mitigate the risks involved, it’s necessary to engage a neutral third-party to ensure that the terms of the contract are met by both parties.
The middleman in this transaction is otherwise known as an escrow service provider.
- What are escrow services?
- When do you need an escrow?
- Know the escrow process
- Who provides escrow accounts?
- How much do escrow services cost?
What is escrow?
Helmed by a third-party provider, they essentially act as the ‘middleman’ in a transaction between two parties and keeps everyone accountable to the terms in an escrow agreement.
This helps to prevent any funny business on both sides.
The escrow provider temporarily tucks the assets away in a conveyancing account until the transaction is complete. The assets of both the buyer and seller are protected as it is entrusted in the care of a neutral provider — out of reach from itchy fingers.
Unlike the law firm you’ve appointed to represent you, they are not invested with who gets to walk away with what by the time the deal closes.
It is only when all the contract terms are fulfilled before the funds are released from the escrow account to the seller. At the other end of the deal, the buyer will receive the title deed and/or keys to the house as the new owner of the property.
When are escrow services needed?
Besides buying a property, you may engage escrow services in any transaction in which you need an impartial party to oversee an exchange of payment. One good example is business transactions.
This ensures that all parties involved must abide by the rules they’ve agreed to.
Fun fact: it is required by law to engage a conveyancing lawyer and set up an escrow when you’re entering into a real estate transaction for private property transactions.
Some other common scenarios that require an escrow account include:
- Business owners: Ordering a huge shipment online could easily be fraudulent; parking the payment in escrow keeps both the buyer and seller accountable until all obligations are met
- Landlord and tenant: In more extreme cases of rental disputes, a tenant may find it necessary to set up an escrow account to ensure certain repairs get done by the landlord
What is a typical escrow process like?
Let’s say you’re interested to buy a condo that’s under construction. You’ve signed the sales and purchase agreement and appointed a law firm to represent you. An escrow is set up by the law firm to facilitate this purchase.
The solicitor’s responsibilities include:
- Draft the terms and conditions in the escrow agreement
- Ensure that the property’s timeline is in order
- Timely payment at each progressive stage of the condo’s construction
For example, an escrow officially comes to a close when all the conditions are met, the funds are disbursed 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 begin, it may surprise you to know that escrow accounts could come from a variety of sources.
You’ll find escrow accounts from these service providers:
- Law firms
- Singapore Academy of Law
How much do escrow services cost?
It depends on the type of property you’re transacting as well as who you’ve appointed to handle the conveyancing process.
If you’ve appointed HDB to represent you, you may calculate the estimated legal fees here.
But if you’re buying a private property, conveyancing fees (which include lawyer fees, stamping fees and the works) may set you back $2,500 to $5,000.
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