Escrow
An impartial holder of funds and documents
An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.
The escrow process helps facilitate the sale or purchase of a home by coordinating documents, funds, lender requirements, title insurance, prorations, recording, and final disbursements.
Escrow process
How escrow supports the transaction
- 1Acts as the impartial stakeholder or depository of documents and funds.
- 2Processes and coordinates the flow of documents and funds.
- 3Keeps parties informed of escrow progress and responds to lender requirements.
- 4Secures title insurance, obtains required approvals, prorates taxes and other items, records documents, and maintains accountability for money owed and owing.
Frequently asked questions
Common escrow questions
The escrow holder may be any disinterested third party, although some states require certain escrow holders to be licensed. Real estate transactions require technical experience and knowledge, and the escrow holder is generally responsible for safeguarding and properly distributing the purchase price.
An escrow officer must remain completely impartial throughout the entire escrow process and follow the instructions of both parties without bias.
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can close. They should be clear and complete in all details.
The seller deposits required documents, the buyer deposits required funds and loan documents, the lender deposits loan proceeds when applicable, and the escrow holder opens title, obtains approvals, receives and disburses funds, prepares statements, records documents, and closes escrow.
Once all terms and conditions of the instructions have been fulfilled and all closing conditions satisfied, escrow is closed and the safe and accurate transfer of property and money has been accomplished.
The division of charges varies by location and agreement. Fees can include title premiums, escrow fees, transfer taxes, recording fees, and loan-related costs. Unless buyer and seller agree otherwise, local custom is generally followed.