What is escrow?

Real estate escrow refers to a legal arrangement in which a neutral third party, known as an escrow agent or escrow officer, holds funds, documents, or other assets on behalf of two or more parties involved in a real estate transaction. The escrow agent is typically a representative from a title company, an attorney, or a dedicated escrow company.

Here’s how real estate escrow typically works:

1. Purchase Agreement: When buyers and sellers reach an agreement on the terms of a real estate transaction, they often enter into a purchase agreement or contract.
2. Opening Escrow: Once the purchase agreement is signed, the parties open an escrow account. This is done by delivering the necessary documents, such as the signed purchase agreement, to the chosen escrow officer.
3. Deposit of Earnest Money: The buyer usually provides an initial deposit, known as earnest money, to the escrow account. This money demonstrates the buyer’s commitment to the transaction.
4. Inspections and Contingencies: The buyer conducts inspections and due diligence, and if any contingencies are outlined in the purchase agreement, they must be satisfied within a specified timeframe.
5. Loan Approval: If the buyer is obtaining financing, the lender works on approving the loan during the escrow period.
6. Title Search and Insurance: The escrow officer conducts a title search to ensure there are no outstanding claims or liens on the property. Title insurance may also be issued to protect the buyer and lender against any unforeseen issues.
7. Closing Documents: Once all conditions are met, the escrow officer prepares the necessary closing documents, including the settlement statement.
8. Closing: Both parties sign the required documents, and the escrow officer ensures that all funds are distributed appropriately. This may include paying off existing mortgages, real estate agent commissions, and other closing costs.
9. Recording: After the closing, the escrow officer ensures that the necessary documents are recorded with the appropriate government agency, officially transferring ownership of the property and all monies to the appropriate parties.

Real estate escrow provides a secure and neutral intermediary, ensuring that neither the buyer nor the seller has an unfair advantage. It helps facilitate a smooth and organized closing process by managing the exchange of funds and documents in accordance with the terms of the purchase agreement. All escrow funds are held in an FDIC insured account by our closing attorneys.