In the construction industry, what is escrow? A construction escrow account is a sort of holding account for funds on a project. It’s normally begun by a project’s lender or financial institution with a title company, although it can also be started by the project owner.
The project’s funds are held in the account until the work is completed, after which they are released to the contractor. Accounts are typically provided for the amount of the project’s completed contract.
Escrow accounts ensure that the monies needed for the project will be available. Before work begins, money is transferred into them so that the contractor is aware that funds are available and that they will be paid.
Construction fund control services, which enable banks and financial institutions maintain track of their construction loans and ensure that they are not overdrawn, are frequently utilized with these accounts.
What Role Do Escrow Accounts Play in The Construction Industry?
When the construction loan closes, ideally before construction begins on site, an escrow account is established. An escrow account may be required by the financing firm, or it may be requested by the project owner or even the contractor. The account is then opened with the help of a title business that is in charge of the account.
The financial institution or the project’s owner then deposits the project contract’s amount into the account, which the financial institution and title firm monitor and distribute funds.
The contractor submits a pay application to the financial institution when they are ready to request payments for completed work. The bank or the fund control business examines the application. An on-site assessment is frequently included to confirm that the amount asked matches the work accomplished.
After the inspector and/or fund control company approve the application, the owner and financial institution approve the request, notify the title company, and the monies are released from the escrow account to the contractor.
Escrow accounts are most commonly associated with financed projects, although they could be used on any construction project to give additional management of project funds and to ensure that the owner has the funds to complete the project. To get started, please contact us.