What is ESCROW?

June 20, 2017 | Iulia Zecheru

Escrow is an arrangement in which a buyer and the seller have a third party, the escrow agent holds money and the documents on their behalf until the transaction is ready to close. The escrow agent is often called a neutral depository.

Escrow has some benefits because parties are protected against change of minds and they don’t have to attend the closing in person. Usually, the listing agent will open escrow after an offer was accepted. During escrow, it’s common for the buyer to order title insurance to make sure there are not any liens, easements or other claims against the property.

Generally, the contract has contingencies that can terminate it, such as inspection, selling of the buyer’s existing home, loan approval etc. Every time a contingency is met, a contingency release form is signed by all parties. Most transactions involve other costs than purchase price: appraisal, inspection, origination fee, discount points, closing costs etc. For each transaction, the escrow agent will prepare a settlement statement which presents all of the financial details, such as: the purchase price, good faith deposit, sales commission, new loan amount, prepayment penalty, appraisal fee, credit report fee, origination fee, discount points, inspection fee, documentary transfer tax, recording and escrow fees.

Escrow can be terminated when the transaction closes or before, only if the buyer and the seller mutually consent to terminate it. In the case of death or incapacity of any of the parties, escrow can not be terminated.

Buyers, Sellers