PT:2 - Escrows Role In The Real Estate Transaction

If you are buying or selling a home, you have likely heard the term "escrow" tossed around in nearly every conversation with your agent or lender. It is often described as a "waiting period," but it is actually much more than that.

Think of escrow as the safety net of the real estate world. It is the mechanism that ensures neither the buyer nor the seller gets taken advantage of during the transfer of high-value property.

In this guide, we will break down exactly what escrow is, the specific role it plays for each party, and the step-by-step process of a transaction.

What Is Escrow?

At its core, Escrow is a legal arrangement in which a neutral third party holds funds, documents, and assets on behalf of the buyer and seller until specific conditions are met.

Imagine you are buying a product

online from a stranger. You don't want to pay until you receive the item, and they don't want to ship the item until they know you have paid. An escrow service solves this by holding your money in a secure account and only releasing it to the seller once you confirm you have received the item.

In real estate, the escrow agent acts as this impartial referee. They ensure that:

• The Buyer doesn’t lose their deposit if the deal falls through for a valid reason (like a failed inspection).

• The Seller doesn’t hand over the deed until the funds are verified and available.

The Step-by-Step Escrow Process

When real estate professionals say a house is "in escrow," they are referring to the period between the accepted offer and the final closing. Here is what typically happens during this timeline:

Step 1: Opening Escrow

Once the purchase agreement is signed, the real estate agent will

open escrow by sending the contract to the escrow officer. This "starts the clock" on the transaction.

Step 2: The Earnest Money Deposit

The buyer must deposit their "earnest money" (usually 1-3% of the purchase price) into the escrow account. This proves to the seller that the buyer is serious. If the buyer walks away without a legal reason, the seller may get to keep this money. If the deal closes, this money is applied toward the down payment.

Step 3: Due Diligence & Contingencies

During this phase, the escrow officer holds the funds while the buyer performs their due diligence. This includes:

• Home Inspections: Checking for structural issues.

• Appraisals: Ensuring the home is worth the price.

• Financing: Finalizing the mortgage approval.

If a contingency (a condition in the contract) is not met—for example, if the roof is leaking and the seller refuses to fix it—the buyer can usually back out, and the escrow officer will return their deposit.

Step 4: Title Search

While the buyer is inspecting the home, the escrow/title company performs a title search. They check public records to ensure there are no liens, unpaid taxes, or legal claims on the property that would prevent the seller from transferring clear ownership.

Step 5: Closing the Deal

Once all inspections are passed and the loan is funded, the transaction is ready to close.

1. The buyer signs the loan documents.

2. The buyer wires the remaining down payment and closing costs to the escrow account.

3. The escrow officer records the deed with the county, officially transferring ownership.

4. The escrow officer distributes the money to the seller and the real estate agents.

Conclusion

Escrow might seem like a lot of paperwork and waiting, but it is the critical "glue" that holds a real estate deal together. By using a neutral third party,

you remove the need for blind trust between strangers, allowing the buyer and seller to proceed with confidence.

Bob Schmalz

bob_schmalz@wlaregroup.com

Call / Text / WhatsApp: 310.505.5571