What is Escrow?


The Escrow is created after you sign the contract to purchase your new home. The escrow agent is an independent and impartial "clearing house." Both the buyer and the seller are assured that the mutual interests of all parties to the transaction are fulfilled because the escrow agent acts as a neutral third party.


Using the escrow agent as a common depository, the buyer and seller can proceed simultaneously in providing funds, deeds, inspection reports, insurance information, and other required documents. Both parties give written instructions, the requirements of which must be met before the transaction is complete, to an escrow officer. Lenders also specify their conditions for completing the loan process. Provided that the instructions are clear and mutually consistent, the escrow officer can save time in the closing process.

How does the escrow proceed?

The authority given to an escrow agent is strictly limited by terms and conditions agreed to on the real estate purchase contract or instructions provided by the buyer and seller. The escrow officer is authorized by the real estate purchase contract or instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees, and other closing costs. The terms and conditions of the real estate purchase contract or instructions also specify the method of collecting funds, proration of insurance and taxes and time limitations on settling the transaction. By holding all money and documents, the escrow process assures buyers and sellers that their mutual instructions will be met.

Confidentiality is another important aspect of escrow. To effectively handle a transaction, your escrow officer must be instructed as to the required terms necessary to close. The officer will discuss escrow matters only with the parties directly involved, specifically the buyer, seller, lender, and real estate agent. No one else has access to this information, except through proper legal procedures. The escrow officer is committed to impartiality and confidentiality concerning the real estate process.

Closing the escrow

Once all terms and conditions are met, the escrow holder causes the necessary documents to be recorded and disburses funds according to the real estate purchase contract or instructions. Escrow fees are included in these costs, and are based on the sales price of the property, the loan amount, and services required.

As a buyer, what do I provide?

  • Earnest money and funds for the property purchase and closing costs.
  • Information/documentation required by Lender, if applicable.
  • If required, documents such as inspection reports, insurance policies, and lien information to verify compliance with the instructions.
**The information above is for educational purposes only.**
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