Escrow
The neutral holding and disbursement of funds and documents according to the parties' written instructions.
01
What It Means
Escrow is an arrangement in which a neutral third party holds funds and documents and disburses them only when the agreed conditions are met. In a real estate transaction that typically includes earnest money, loan proceeds, payoffs, prorations, and closing costs.
The escrow officer follows written instructions drawn from the contract, lender instructions, and payoff statements. They do not decide disputes between the parties.
02
Why It Matters
Escrow is what allows a buyer and seller who may never meet to exchange large sums and legal documents with confidence that neither side performs without the other.
Because escrow handles wire transfers, it is also a frequent target for fraud. Verifying wire instructions verbally with a known contact is an important precaution.
03
Common Misconceptions
- "The escrow officer represents me." Escrow is neutral; it follows instructions rather than advocating for either party.
- "Earnest money is the same as a down payment." Earnest money is deposited early and typically credited at closing; the down payment is a separate figure.
- "Escrow can release funds if one side asks." Disbursement generally requires the conditions or mutual instructions to be satisfied.
04
Questions to Ask
- How are escrow funds held, and at which institution?
- How do I verify wire instructions before sending funds?
- When is earnest money due, and how is it delivered?
- What happens to escrowed funds if the transaction does not close?
- Who provides the escrow instructions, and may I review them?
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Related Reading & Resources
The most successful real estate decisions often involve collaboration between several professionals working toward the same goal. Understanding each person's role helps you ask better questions and make more confident decisions.
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Other Title Terms
- Title SearchThe research process that traces recorded ownership and identifies documents affecting a property's title.
- Title CommitmentThe document that sets out what the title company found and the terms on which it would insure title.
- Title InsuranceCoverage designed to protect against certain covered defects in title that existed before the policy was issued.
- Owner's PolicyThe title insurance policy that protects the buyer's ownership interest rather than the lender's loan.
- Lender's PolicyThe policy a lender requires to insure the validity and priority of its lien.
- ClosingThe point at which documents are signed, funds are disbursed, and ownership transfers.
Questions About the Closing Process?
Closing on a property involves many moving parts, from title research and escrow to signing documents and recording ownership. I'd be happy to help you understand the process, answer your questions, and connect you with experienced title professionals as you prepare for your transaction.
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