Escrow: A must-have for your real estate transactions
Many people are under the impression that buying property in Mexico is unregulated, an impression that is certainly not true. The truth is, when a buyer or seller deals with professional real estate agents, every step of the transaction is recorded to ensure all involved are protected.
For nearly 10 years, AREA Advanced Real Estate Advisors has been working with one of the oldest and most established real estate title companies in Latin America, Stewart Title. Mr. Ivan Castillo of Stewart Title has taken the liberty of explaining just how escrow works here in Playa del Carmen and why it’s a good idea when buying or selling real estate property.
Escrow for Mexico real estate transactions
Mexico has a history of being a great recipient of foreign investments. Foreigners often come to the country as tourists where they fall in love with the sandy beaches, the culture, food, people and the hospitality. They start thinking that their well-earned dollars may go a very long way investing in their dream property. However, before taking the plunge, investors always need to assess the risks involved when buying in another country.
One of the tools available to mitigate such risks, as in major developed markets, is the financial figure of the escrow account. When a transaction is said to be in “escrow” means that a negotiation has taken place, the parties involved have agreed on terms and at least earnest money has been deposited in an impartial third party bank account specified to complete the purchase.
The escrow agent acts as a neutral third party to collect the required funds and documents involved in the closing process; from the initial earnest money deposit to the different payment milestones required to complete the transaction.
Escrow services are available and have become widely accepted to complete thousands of transactions in Mexico. Escrows have become the norm to providing a safe and secure financial transaction.
Here are some of the reasons every investor should consider it:
Protection of investment money
An escrow account protects the money of the buyer and seller against unprofessionalism (documentation errors, title problems, property not free of liens and/or encumbrances, etc.), as well as negligent intentions of any of the parties, pure bad luck or tragedy (e.g. seller’s or buyer’s death). As payment from the escrow account to the seller by the escrow agent is subject to conditions being met the buyers, money is safe from all these potential risks. Payment instructions may also include penalties in the event of breach of contract by either party.
Avoid potential misunderstandings
As the conditions for release of funds are clearly written out in the escrow agreement, as it is signed by all parties involved, there can be no room for interpretation as to what the conditions need to be to close the transaction. Also, none of the parties with a financial interest in the transaction (buyer, seller or brokers) controls the funds involved in the transaction. This should reduce the risk of potential conflicts and misunderstandings between the parties.
For realtor and agent protection and reputation
If a realtor recommends its clients to use an escrow agent, it not only shows that they are truly working with the best interest of their clients in mind, but also demonstrates professionalism and credibility. The realtor, by outsourcing the management of money to the escrow agent, eliminates any conflict of interest as his or her role in handling the financial aspects of the transaction. It also protects their own interest as they get paid their commission directly by the escrow agent, before the closing and not being dependent on either the seller or the buyer to have the additional funds to pay.
Above all, transparent transactions
Both parties will have a clear financial statement on how the monies are managed and disbursed. Every milestone is communicated when conditions are met and it is clearly stated who pays when and to whom the money is released.
All closing costs and third-party payments may be handle through escrow and will clearly state the details of such disbursements. Since escrow accounts only accept wire transfers, and professional escrow companies would have the accounts based in the United States, accepting only U.S. dollars, there is no issue of dubious or hidden fees. This means that the entire process is transparent giving additional security to the investor.
Since 1996, Stewart Title has been the leader in Escrow & Title Services in México and Latin America with more than 30,000 transactions and $12 billion in escrow experience.
This article was written by Stewart Title for sole use by AREA Advanced Real Estate Advisors. Copyright © 2016 AREA Advanced Real Estate Advisors. All Rights Reserved.