What is Escrow?

What is it?

'Escrow,' in real estate terms, refers to the money that is held by a neutral third party when the transaction is being made between a buyer and a seller of property. The role of an escrow agent is to carry out the instructions agreed upon by both parties. The money held in escrow is released to the seller only when these agreements are met.

When do you use an Escrow?

An escrow is most popularly used in conjunction with the buying/selling of a home. During the home buying process, when you make your initial offer to purchase, you will also be advised to place money in an escrow account to demonstrate to the seller of your intent to purchase their property. This acts as a signal of intent, and also as an insurance to the seller, so that they understand that you are serious about your offer. If they accept the offer to purchase, then or shortly after some adjustments, the funds in escrow will transfer to them. The buyer must pay the remainder of the purchase price at a later time, determined by negotiations.

What are the Benefits of an Escrow?

The first and most simple benefit of an escrow is that it is an affirmative way that buyers can signal to sellers that they are serious in their intent to purchase a property. With funds placed in escrow, sellers are able to proceed with negotiations about the purchase of their home without the threat of fickle buyers changing their minds and possibly leaving the deal midway.

In general, the escrow agent will process the funds according to the escrow instructions, and once all the conditions within the instructions have been met, the escrow will be closed. Although all escrow accounts typically follow a similar pattern, they may vary from one transaction to the next depending on the value of each individual property.

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