Burt M. Polson - Commercial Real Estate Broker

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Closing Escrow (Insert Blissful Harp Music Here) - Part 3

Most everyone involved in a transaction has a sense of relief when escrow closes. This usually signifies the transaction is complete. Everyone has completed their tasks at hand, the seller and buyer performed as written in the purchase agreement and everyone’s happy.

Well...most of the time. The transactions I’ve been involved with, for the most part, included a buyer and seller who welcomed the closing of escrow. Let’s just say some had a higher sense of relief than others.

Take Kent and John for example, we’ve been walking through the sale of Kent’s office building to John in part 1 and part 2. This was mostly a straight-forward escrow with a timeline of 75 days. It would have been less, but John’s lender had a last minute report they needed which added two weeks.

There was also a credit John requested from Kent of $15,000 for an old boiler with asbestos insulation that needed to be removed after closing. This was not known until John performed his inspections. This did not add to the length of the escrow timeline, but was rather a slight detour.

“Ca-Ca-Ca Closing”

Let’s use a train locomotive, railroad tracks and operating personnel as a metaphor to describe this entire process.

The purchase agreement is the railroad track that must be followed. The timeline, who is responsible for certain costs and is also responsible for certain tasks is included. It is all laid-out in front of us once the purchase agreement is ratified.

The escrow is the train locomotive.  The escrow officer is the conductor--the one who makes sure the train gets safely where it needs to go. The brokers act as the engineers orchestrating everything to reach the final destination while the buyer and seller are the trainmasters from whom we take direction.

The inspectors, contractors, lender, appraiser, title officer, etc. are all just along for the ride, but are essential in one way or another.

Oftentimes, we may need to hit the railroad switch and take a slight detour, but ultimately we must follow the path set by the purchase agreement.

The Waybill, a.k.a. The Closing Statement

Keeping with the railroad metaphor, trains have waybills while escrows have estimated closing statements and final closing statements.

There is a statement for the buyer and one for the seller. Each have a description, debit and credit column. The statement is an accounting, line-by-line, of the financial-side of a transaction.

Remember the $15,000 credit from seller to the buyer? This would show as a debit on the seller’s statement and a credit on the buyer’s.

You will find several debits and credits on each statement with the bottom line of each equaling the purchase price. This is basically double-entry accounting.

Other line items could be: loan amount, commission, inspection report cost, title insurance, prorated property taxes, loan fees, etc.

Escrows can be complicated that is why I treat my escrow officers kindly because they help make my job smoother and more efficient.

Burt M. Polson, CCIM, is a local real estate broker specializing in commercial, luxury estates and wineries. Reach him at 707-254-8000, burt@acresinfo.com. Sign up for his email newsletter at BurtPolson.com.

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