Explaining Escrow Terms: The Principal in Real Estate Transactions

If you are buying or selling real estate, you want everything done safely, quickly, and efficiently. The entire process involves multiple parties that ensure successful transactions during the purchase or sale. If you're looking to buy or sell real estate or take out a mortgage, then you've probably heard terms like the principal in real estate and escrow.

If you are not a real estate expert and are not familiar with escrow terms, don't worry! This article will give you a detailed insight into what principal in real estate transactions is. But before that, we will refer to the very concept of escrow so that you can better understand the role of the principal in real estate. So, let's get started!

What Is Escrow?

Escrow is a legal arrangement in which a third party temporarily holds money or property, and it protects both the buyer and the seller during the buying process.

You can use escrow for 2 reasons:

to protect the deposit so that the money goes into the right hands (the deposit will remain in the escrow account at all times until the transaction is closed);
to protect the property owner's funds for insurance and property taxes.

There are two types of escrow accounts, one you can use when buying a property and the other during the loan repayment process. Most lenders require you to open an escrow account for the property taxes and home insurance that go along with your mortgage.

How Does It Work?

We'll give you an example. Let's say you want to buy or sell your house. For the entire purchase process to be valid, you must sign the purchase agreement. As with any paperwork, you are required to sign certain documents.

The escrow company will hold all your documents and funds until you and the buyer have fulfilled all the rules of the contract. Then it is time to close escrow.

But who manages the escrow account? It is a neutral third party (your escrow agent or company) whose job it is to ensure a reliable, high-quality, and fast transaction, with the principals in real estate being the most important clients.

Also, there is a difference between escrow and principal in real estate that you should know. If you are paying toward the principal of your mortgage, you are paying toward the original debt. When you pay in escrow, you must set aside funds to pay future interest and taxes.

Below, you will find out who they are, what their duties are, and their relationship with agents who also play an important role in real estate transactions.

Who Is the Principal in Real Estate Transactions?

In simple terms, the principals in real estate transactions would be the buyer and seller, landlord or tenant, licensor or licensor, broker or property manager involved in the contract. In the escrow process, principals are the primary parties of the transaction - the buyer and the seller.

The buyer is the party who purchases the real estate property for a price set by the seller. They are typically represented by a real estate agent or broker and are responsible for obtaining financing, making offers, and negotiating the purchase contract.

The seller is the party who owns the real estate property and is offering it for sale. They are typically represented by a real estate agent or broker and are responsible for setting the price, accepting offers, and negotiating the sale contract. They are also responsible for paying any taxes, fees, and closing costs associated with the sale.

To avoid confusion, the term principal in real estate has several meanings in the world of finance. It can refer to money borrowed as a loan or put into an investment. In the context of lending, the principal is the initial amount of the loan, and in the context of investing, the principal is the initial amount invested.

What Is the Relationship Between Principals and Real Estate Agents?

Each principle in a real estate transaction has its own relationship with the agent, consequential with their needs and goals. They both want to get the most out of the transaction. There can either be two agents representing each principal, or one agent that tries to meet them in the middle. Either way, those two relationships are different.

Real Estate Agent and a Seller

The relationship between the seller and the real estate agent is a professional business relationship. The real estate agent acts as the seller's representative and is responsible for marketing the property, showing the property to potential buyers, negotiating the terms of the sale, and closing the deal.

The seller pays the real estate agent a commission, typically a percentage of the sale price, upon completion of the sale. The seller relies on the real estate agent to represent their interests and to find a buyer for the property. The real estate agent is obligated to act in the best interests of the seller and must adhere to ethical standards and local laws.

Real Estate Agent and a Buyer

The relationship between the buyer and the real estate agent is one of trust and collaboration. The buyer relies on the real estate agent to provide expertise, guidance, and honest advice throughout the home-buying process.

The real estate agent is responsible for finding the right home for the buyer, negotiating the terms of the sale, and providing information about the local market. The buyer trusts the real estate agent to provide accurate and up-to-date information and guidance, as well as to represent their best interests throughout the transaction.

What Are the Rights and Duties of the Principal in Real Estate?

Rights of the Seller:

Right to set the price.
Right to negotiate the terms of the sale.
Right to receive payment for the property.
Right to accept or reject any offers made on the property.

Rights of the Buyer

Right to inspection: The buyer has the right to inspect the property prior to purchasing it. This includes a physical inspection of the property to identify any physical defects or structural issues.
Right to reasonable disclosure: The seller must disclose any material facts about the property that could affect the buyer's decision to purchase.
Right to legal representation: The buyer has the right to have a lawyer present during the sale and during the negotiation process.
Right to revoke the contract: The buyer has the right to revoke the contract if the seller fails to meet the terms of the agreement.

Duties of the Seller

Duty to disclose all material facts about the property
Duty to provide accurate and complete information about the property
Duty to transfer a clear title to the buyer
Duty to comply with all applicable laws, ordinances, and regulations
Duty to provide good faith, fair dealing, and honesty throughout the transaction
Duty to promptly respond to all inquiries made by the buyer.

Duties of the Buyer

Duty to pay: The buyer has the duty to pay the purchase price according to the terms of the contract
Duty to perform: The buyer has the duty to perform any obligations outlined in the contract, such as making necessary repairs or paying for additional services
Duty to disclose: The buyer has the duty to disclose any material facts about the property that could affect the buyer's decision to purchase
Duty to notify: The buyer has the duty to notify the seller of any changes in the buyer's

How to Find a Professional and Efficient Escrow Company?

Through this article, you learned about the unique role of a principal and its duties in real estate transactions and the escrow process. Although buying or selling real estate never sounds easy at first impression, in reality, you can really get lucky with an escrow company that makes all your buying process go smoothly and without difficulties.

If you are looking for a reliable company in real estate that will professionally entrust all real estate transactions to your agent, Lightspeed Escrow is the right place for you.

Have more questions about escrow or principals? For quick and quality services, contact us, and we will give you answers as soon as possible and provide you with an expert principal and fast real estate transaction on any escrow service.

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