What is a Real Estate Escrow?

By Susan Saurastri | Published: September 2, 2011

When entering into an escrow, the buyer and seller of a piece of property establish terms and conditions for the transfer of ownership of that property. These terms and conditions are given to a third party known as the escrow holder.

How does the escrow process work?

The escrow is a depository for all monies, instructions and documents necessary for the purchase of your home, including your funds for down payment and your lenders funds and documents for the new loan. Prior to close of escrow, the buyer deposits the balance of funds required and agreed upon by the parties with the escrow holder. The buyer instructs the escrow holder to deliver the monies to the seller when the escrow holder:

1) Forwards the deed to the title company for recording;

2) Is notified by the title company that a policy of title insurance can be issued that shows title to the property is vested in the name of the buyer.

The escrow holder handles the pro-rations and adjustments on any fire/hazard insurance, real estate taxes, rents, interest, etc., based on the escrow instructions of both parties. The escrow holder thus acts for both parties and protects the interests of each within the authority of the escrow instructions.

How do I open an escrow?

Your real estate agent will open the escrow for you. As soon as you execute your purchase agreement/joint escrow instructions, your agent will place your initial deposit into an escrow account. The escrow holder takes instructions based on the terms of the purchase agreement and the lenders requirements. Escrow cannot be completed until the terms and conditions of the instructions have been satisfied and all parties have signed escrow documents.

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