Escrow 101: How Escrow Works
A simple guide to understanding the escrow process, designed to give you clarity and peace of mind during your transaction.
What is Escrow?
Escrow is a legal arrangement where a third party holds money or property until a particular condition has been met (such as the fulfillment of a purchase agreement).
Key Point: Ideally, the escrow holder is a neutral third party who ensures that everyone follows the rules and conditions laid out in the contract.
Why Escrow is Used
Ensure Conditions Met
Holds funds and documents until all terms are satisfied.
Neutral Handling
Unbiased third party protects the interests of all sides.
Coordinate Comms
Acts as a central hub for all transaction details.
Reduce Risk
Protects against fraud and non-performance.
Parties Commonly Involved
Understanding who plays a role in your escrow transaction helps clarify communication lines.
Buyer
Seller
Escrow Company
Real Estate Agents
Lenders
Attorneys
Step-by-Step: Life of an Escrow
From opening to closing, here is the standard journey.
Open Escrow
The purchase agreement is signed, and the initial deposit is placed into the escrow account. A file is opened.
Confirm Instructions
Escrow officer prepares detailed escrow instructions supplementing the purchase agreement for all parties to sign.
Document Coordination
Preliminary title reports, seller disclosures, and loan documents are ordered, received, and reviewed.
Condition Tracking
Escrow monitors the file to ensure contingencies (inspections, appraisal) are removed by the agreed deadlines.
Funding Preparation
Buyer signs loan docs, lender sends funds to escrow. Buyer deposits remaining down payment and closing costs.
Closing
Deed is recorded with the county. Funds are disbursed to the seller and other parties. Keys are transferred!
Common Items Handled
- Purchase agreements and counter offers
- Disclosure statements and reports
- Earnest money deposits and closing funds
- Grant deeds and recording documentation
- Notarized signatures on key documents
What Escrow Does NOT Do
- Offer legal advice or tax counsel
- Negotiate transaction terms or prices
- Represent one party against another
- Approve or deny the loan (that's the lender)
Security and Wire Fraud Awareness
Wire fraud is a serious threat in real estate transactions. Criminals may attempt to impersonate escrow officers to steal funds. Protect yourself:
ALWAYS verify wiring instructions by phone with a known number.
NEVER rely solely on email or text for changing wiring instructions.
Have questions about escrow?
We are here to guide you through every step of the process.