When buying or selling property, a lot of money is exchanged. To keep the transaction safe, the money is often held by a neutral third party known as an escrow agent. This person or company keeps the money until the deal is complete. What happens if the escrow agent takes the money and goes missing? The buyer could lose their savings. That’s why some U.S. states require escrow agents to get an Escrow Security Bond before they can legally work.
What Is an Escrow Security Bond?
An escrow security bond is a type of surety bond. It acts like a financial promise that the escrow agent or company will follow the law and act honestly. If they break the rules or act unethically, the bond can be used to repay anyone who was harmed by their actions. This protects people from losing money due to fraud or dishonest behaviour.
How Does It Work?
There are three main people or groups involved in an escrow bond:
- Obligee – The state authority that asks for the bond.
- Principal – The escrow agent or business that gets the bond.
- Surety – The company that issues the bond and guarantees the coverage.
If a buyer or seller loses money because the escrow agent acted wrongly, they can file a claim against the bond. The surety will look into the complaint. If the claim is valid, the surety will pay the person who filed it, up to the full amount of the bond. After that, the escrow agent must repay the surety company.
Who Needs an Escrow Bond?
If you plan to work as an escrow agent or start an escrow company in some states, you need this bond to operate legally. Without it, you aren’t allowed to run your business. Currently, these states require escrow bonds:
- Arizona
- California
- Idaho
- Oregon
- Utah
- Washington
Make sure to check with your state’s licensing board to know exactly what’s needed. If you’re applying for a license that requires an Escrow Agent Bond , understanding the specific obligations tied to it is crucial. If you’re uncertain, bond providers such as Viking Bond Service can help you understand the requirements and guide you through the process.
How Much Does It Cost?
Each state decides how much coverage is needed. For instance, Arizona requires a $100,000 bond, while Washington only requires $10,000. However, you don’t have to pay the full bond amount—just a small portion known as the premium. You only pay a small portion called a premium. This usually ranges from 1% to 5% of the bond’s value.
So, a $100,000 bond could cost you as little as $1,000 if you have excellent credit. If your credit isn’t perfect, the cost might be higher. Still, most bond companies offer help so you can get approved at the best rate possible.
Conclusion
Escrow security bonds help keep real estate transactions honest and safe. They protect buyers, sellers, and the reputation of the escrow industry. If you plan to become an escrow agent in a state where bonding is required, getting your bond is the first important step toward a legal and trustworthy business.
