Buying A House: Additional Funds Due at Closing

Sample Section 1C

On the first page of the purchase contract there is a section that defines your purchase price, your “down payment” and your earnest deposit, and/or anything else you wish to stipulate.

Section 1c to be exact, provides for all of these.  You first define your purchase price, or the full amount you’re willing to pay for the property.  Below that, you include how much money you’re willing to put up as a deposit on the transaction to show the seller that you’re serious about purchasing the property.  This amount is released to you at close of escrow for the purpose of fulfilling a portion of the purchase price, plus closing costs.

The third line is often used to define the down-payment.  On a contract, I typically don’t write “down-payment.”  Instead, something on the lines of, “Additional funds due at close of escrow.”

When you open escrow after the contract is ratified by the seller (assuming all parties agree to all terms of the purchase contract and all parties have signed,) your earnest deposit goes to the escrow company, which you’ve chosen prior to writing the contract.  They issue you a receipt, and they hold this money through the escrow period.  You receive a receipt, and begin your 10-day inspection period (in most cases.)  Short sales are a bit different, depending on how the seller has instructed you.

When it comes time to close, you bring the difference, or the “Additional funds due at close of escrow” to fulfill your promise on the down-payment.  Below is an example of Section 1c for a house with a purchase price of $100,000.00, a 3.5% down-payment, and an earnest deposit of 1.5% of the purchase price.  Lines 9, 10, and 11 should add up to the purchase price in line 8.

What is Escrow?

Escrow, according to the Online Etymology Dictionary, is a “deed delivered to a third person until a future condition is satisfied.”

Let’s do a backyard bargain example of escrow.  Bob is selling a lawn mower for $400.00, and Joe wants to buy it, but Joe and Bob don’t know each other very well.  They both, however, know Fred very well.  Joe has $50.00 in his pocket, but he’ll need to come up with the balance by borrowing it.  He’ll also need to have a mechanic take a look at it before he commits to buying it.  Bob accepts $50.00 from Joe to hold the lawn mower until it is inspected and the loan comes through, but since Joe doesn’t know Bob very well, Joe tells Bob that Fred will hold the $50.00 for both of them until the deal goes through.  Joe gets the loan, inspects the lawn mower, and decides to move forward with the purchase.  Joe’s bank wires the funds to Fred, Fred tells Bob that the funds are good, and Bob tells Fred that it’s okay to release the lawn mower to Joe.

As a buyer or seller, it’s important to be sure that all of the conditions of the property sale have been met before the property and money changes hands.  It is:

“A transaction where one party engages in the sale, transfer, or lease of real or personal property with another person who delivers a written instrument, money or other item(s) of value to a neutral third party.”

In the case of real estate in Arizona, this would be the Title/Escrow company.  The escrow company holds the money or the items until a specified condition has been met, at which point the item(s) or money is released.

The escrow holder, who is impartial to the terms of the transaction, carries out the written instructions given them by the people involved in the transaction (the buyer and the seller.)  The instructions are in the terms and conditions of the purchase contract.  Included in this is the receiving of funds and documents necessary to comply with those instructions, and completing or obtaining the required forms and handling delivery of all of the items to the proper parties upon a successful completion of the escrow period.

When all of the instructions have been carried out, including providing tax statements, loan documents, earnest deposit(s), and other particular services to be paid to principals to the transaction, a successful closing can take place and the property ownership transfer can be recorded at the county recorder’s office.  This is when title to the property changes hands and title insurance policies are issued.

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All information should be verified by the recipient and none is guaranteed as accurate by ARMLS.

Copyright 2012 Arizona Regional Multiple Listing Service, Inc. All rights reserved.

Data last updated 5/21/12 1:23 PM PDT.

This IDX solution is (c) Diverse Solutions 2012.