What is Escrow

Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met, such as the fulfillment of a purchase agreement. It is commonly used in real estate transactions to ensure that both the buyer and seller meet their contractual obligations before the sale is finalized.

Escrow provides a layer of security for both buyers and sellers in a real estate transaction. It ensures that:

• Funds and documents are protected: An escrow company holds the buyer's funds and the seller's property documents until all conditions of the sale are met.

• Smooth transaction: It helps manage the process, ensuring all necessary steps are completed, and minimizes the risk of fraud or misunderstandings.

• Peace of mind: Both parties can proceed with confidence, knowing that an impartial third party is managing the process.

1. Opening Escrow:

Once the buyer and seller agree on the terms of the sale and sign a purchase agreement, the buyer's earnest money deposit is placed into an escrow account. The escrow company, a neutral third party, is responsible for managing the transaction.

2. During Escrow:

The escrow company ensures that all conditions of the sale are met, which may include inspections, title searches, financing, and any necessary repairs. Both parties will provide necessary documents and instructions to the escrow company.

3. Closing Escrow:

Once all conditions are satisfied, the buyer transfers the remaining purchase funds to the escrow account. The escrow company disburses the funds to the seller and records the transfer of the property title with the relevant government authority. The buyer receives the keys to the property, and the transaction is complete.

• Earnest Money Deposit: A deposit made by the buyer to show their commitment to purchasing the property. It is held in escrow until closing.
• Title Search: A process of verifying the legal ownership of the property and checking for any liens or claims against it.
• Closing Costs: Fees and expenses associated with finalizing the real estate transaction, including escrow fees, title insurance, and recording fees.
• Contingencies: Conditions that must be met for the sale to proceed, such as satisfactory home inspection and loan approval.

• Neutral Third Party: Acts impartially to ensure both buyer and seller fulfill their contractual obligations.
• Document Management: Handles the paperwork involved in the transaction, ensuring all documents are completed correctly and on time.
• Funds Distribution: Manages the transfer of funds, ensuring the seller is paid and the buyer receives the title to the property.

Escrow is an essential component of real estate transactions, providing security and peace of mind for both buyers and sellers. By understanding the basics of escrow, you can navigate your real estate transaction with confidence.