Summer is one of the hottest seasons – literally and figuratively – for real estate. If you’re jumping into the market, whether to buy your first home or make a move-up purchase, you’re likely to come across a lot of industry lingo. One term that tends to confuse even savvy buyers? Escrow.
So, what is escrow, and why does it matter to you as a buyer or seller? Let’s break it down.
What Is Escrow, Exactly?
In real estate, escrow refers to a neutral third-party account that holds money and documents while a home sale is in progress. Think of it as a safety net that protects both the buyer and seller during the transaction.
Once a purchase offer is accepted, the buyer usually deposits "earnest money" (a small percentage of the home’s price) into escrow to show they’re serious. That money stays there until all the conditions of the sale are met.
Why Escrow Exists
Escrow ensures that:
◘ The buyer doesn’t lose money if the seller backs out unfairly.
◘ The seller doesn’t sign over the deed until the buyer’s financing comes through.
◘ Everyone holds up their end of the bargain – inspections, repairs, final walk-throughs, and closing paperwork all go through escrow.
It’s about trust, but with a backup system.
What Happens During the Escrow Period
Typically lasting 30 to 60 days, this period is where all the “in-between” stuff happens. Here’s what usually gets handled:
◘ Appraisal and inspections are scheduled.
◘ The buyer’s mortgage gets finalized.
◘ Title checks are completed to ensure there are no liens or claims on the property.
◘ Any negotiated repairs are made.
◘ The buyer transfers the rest of the down payment into escrow.
◘ Both parties review and sign final documents.
Once everything is in place, the escrow company releases the funds and officially transfers ownership.
Escrow After Closing? Yep, That’s a Thing Too
You might hear about an "escrow account" after the sale – this is especially common with mortgages. It’s where your lender holds money for property taxes and homeowners insurance, collecting a little each month with your mortgage payment so those big bills are covered automatically.
Quick Q&A: Common Escrow Questions
Q: What happens if the deal falls through?
A: If the buyer backs out for a reason allowed in the contract (like a failed inspection), they usually get their earnest money back. If not, the seller may keep it.
Q: Who chooses the escrow company?
A: It’s often negotiated between buyer and seller. In some areas, it’s common for the listing agent to recommend one.
Q: When will I know the amount of funds needed to close escrow?
A: Once your loan documents are received and your escrow instructions are prepared, the title company will notify your real estate agent and/or you of the exact amount required to close escrow.
Escrow may sound complex, but it’s really about making the transaction fair and secure. If you're planning to buy or sell, knowing how escrow works will help you move through the process with more confidence – and fewer surprises.
Have questions about how escrow works in our market or what to expect? I’m here to help every step of the way.
You might also enjoy reading:
Understanding Appraisals: What You Need to Know
Understanding Home Insurance
What NOT to Do When Buying a Home
What is a Mortgage Rate Buy Down?