What is escrow?

After a buyer has agreed to purchase a home from a seller, the escrow process begins. This is designed to make sure that all the necessary conditions and obligations are met so the transaction can proceed smoothly.

 Purpose of Escrow

 Escrow is designed to protect all the parties involved in a real estate transaction from risk and to ensure that everyone is acting in good faith. The seller will need to prove that he or she owns the house and that it’s not subject to any liens from third parties that could prevent or complicate the sale. The buyer will need to prove that he or she has the funds necessary to buy the house or the financial means to obtain a mortgage.

What Happens During the Escrow Process

 Escrow is generally a mandatory part of a real estate transaction that starts after the seller accepts the buyer’s offer to purchase the house. The law related to the escrow process varies by state. Still, in general, an escrow agent, who is a neutral third party with no vested interest in the transaction, is assigned to handle the process and to protect each involved party from risk. The escrow agent is paid a fee that represents a small percentage of the sale price. This fee can be paid by the buyer, the seller, or both.

Earnest money is a small percentage of the sale price that the buyer provides to demonstrate that he or she is serious about buying the house. In exchange, the seller takes the house off the market. After the sale is completed, the earnest money is applied to the buyer’s down payment. Until the sale is finalized, the earnest money and the house are both considered to be in escrow.

The escrow agent collects the sales contract, earnest money, and contingencies related to insurance, inspections, repairs, and any other requirements that must be met to finalize the sale. These items are placed in an account and stay there until the buyer and seller have fulfilled all their duties required by the terms of the contract.

Once all parties have met their obligations, and all the necessary documents have been signed, the mortgage lender pays the money due to the seller. Then the deed is recorded in the name of the new owner, escrow closes, and the buyer can move into the house.

Understand How Escrow Works

 The escrow process is designed to protect both the buyer and the seller in a real estate transaction. It allows each party to be confident that the other is acting in good faith and meeting the requirements set forth in the contract. Escrow also allows each party that is due payment to receive the appropriate amount in a timely manner. If you have any questions about the escrow process as it relates to your specific situation, talk to your real estate agent.



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