Benefits Of Escrow In Real Estate
Escrow is when a neutral third party holds on to funds during a transaction. In real estate, it’s used as a way to protect both the buyer and seller during the home purchasing process. If you are buying a property in Ukraine, you will almost certainly encounter the fact that owners here 1) price things in US dollars and 2) expect to be paid in physical cash across the table.
While paying in US dollars is legal if you are a non-resident, i.e. you do not have a Ukrainian passport or permanent residency, it is neither legal nor safe to purchase a property that costs more than 50,000 UAH in cash, only by bank transfer. This means that you must open a Ukrainian bank account, but this can come with its own set of problems, namely:
- An escrow agreement is signed laying out all the terms, after which funds can be transferred to the escrow account for use in the purchase of property, plus payment of all other closing costs (notary fees, legal fees, agency commissions, bank fees, etc) associated with the deal;
- Seller will be required to open an account in the same bank in advance, so as to be 100% ready to receive funds from escrow;
- On the day of the deal, the purchase-sale agreement is signed, and if all other terms of the agreement are met then payment is initiated from escrow to the seller;
- Once the seller receives the funds (typically 1-2 hours), the seller confirms receipt of payment with the notary, and the deal is finalized with the title being transferred to the buyer;
- Closing costs will also be transferred from the escrow once the title is transferred, thus concluding the deal.
Note: Escrow can also be used to leave a deposit on a property in advance of the main deal, with the process being very similar aside from the sums being much smaller.
For investor buyers, it is advised to send $5-10k to the escrow account as soon as you are ready to begin the purchase process, as this enables maximum flexibility for moving on a hot deal that can pop up. If you wait until a great property is located and all terms to be negotiated before sending the money, during this time that the money is in transit to the escrow account, plus getting final approval from the bank, these hot deals could be taken by an aggressive local buyer who is paying in physical cash.