How Escrow Works

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What is Escrow?

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Let’s talk about “escrow”. An escrow company is used to assure your property closes on time and the process goes smoothly. Escrow holders hold money for “safe-keeping” in an exchange between a buyer and seller. For example, in an online purchase, PayPal is the reliable third party that obtains the buyer’s funds, and then sends the funds to the seller.


The escrow company makes sure that the terms and conditions of the agreement between the sellers and the buyers are met prior to the sale being finalized.

These are the legal documents that escrow agents usually compile:

  • Terms of sale and any seller-assisted financing
  • Requests for payment for various services to be paid out of escrow funds
  • Loan documents
  • Tax statements
  • Fire and other insurance policies
  • Title insurance policies

Closing on the property takes place when the steps of the escrow are done. All outstanding payments and fees are taken and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). The house’s title is given to you and title insurance is issued per the policies of your particular escrow agreement.

At the close of escrow, fees are paid in an acceptable form to the escrow. We’ll keep you up-to-date on what comes next.

The Escrow Holder Will:
The Escrow Holder Won’t:
  • Assemble escrow guidelines
  • Request title research
  • Meet lender’s requirements as noted in the escrow agreement
  • Accept funds from the buyer
  • Prorate insurance, tax, interest and other payments according to guidelines
  • Record deeds and other legal documents as instructed
  • Request title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse monies and finish instructions
  • Tell you what’s best – the escrow holder stays at an impartial, third-party status
  • Offer opinions about the outcome of your taxes

Mortgage Escrow Account

Often, to pay recurring costs while there’s a loan on the house, a Mortgage Escrow Account is created. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

Now you know more about how to close on your future home. And, you can be a more informed home buyer and future homeowner.