A real estate transaction is comprised of numerous parties and an escrow company is one of them.
In this post, we’ll quickly run through common phrases and questions related to an escrow company and the role they plan in a real estate transaction.
What is an escrow company?
An escrow company is a neutral third party in a real estate transaction whose primary role is to protect the interests of all parties involved. They’re responsible for making sure the transaction is not final until all terms and conditions in the purchase contract have been met. At a high level, they’re responsible for three things:
- Handling the funds between the buyer and seller
- Making sure that the buyer doesn’t receive the deed to the property until the conditions in the purchase contract are met
- Ensuring the seller doesn’t receive any funds until those same conditions are met and the transaction is closed
Whether you’re selling your home or buying, you can kind of think of an escrow company as the middleman in a real estate transaction.
The buyer’s agent represents the buyer, the seller’s agent represents the seller, and the escrow company is the middleman that makes sure the sale is not final until the conditions and terms in the contract have been met.
What is an escrow officer?
An escrow officer, also known as an escrow agent, is a representative at the escrow company who is assigned to the transaction.
Their role is to only provide escrow services, while not giving any kind of advice to either party. They can objectively discuss the instructions for the closing to take place, but they must remain completely neutral. It’s the escrow officer’s job to make sure all of the T’s are crossed and all of the I’s are dotted.
Is an escrow company the same as a title company?
In short, no, an escrow company is not the same as a title company.
An escrow company is a neutral third party in a real estate transaction that ensures that all conditions and terms in the contract have been met before closing.
A title company handles the transfer of the sale from a legal perspective by ensuring that all rights and interests of a property are in line to proceed with the transfer. A title company also provides title insurance to both parties.
In some parts of the country, the title company is also the escrow company (e.g. Northern California), and in other areas, they are two separate services (Southern California).
Who opens escrow?
The real estate agent will usually open escrow, but technically, it’s the buyer’s or seller’s choice. Whether it’s the buyer, seller, or agent, it depends on the region.
For example, in California, it’s very common for escrow to be opened by the seller’s agent before the home is even on the market. In other parts of the country, it’s common for escrow to be opened by the buyer’s agent after the contract has been ratified.
What is an escrow deposit?
An escrow deposit is the dollar amount the buyer deposits into an escrow account after the seller has accepted their offer. This is also known as a “good faith deposit” or “earnest money deposit”.
These funds are part of the buyer’s down payment. The exact amount to be deposited and when are terms agreed to in the purchase contract.
After the contract is ratified, this is the first big step in a real estate transaction.
Why? Because the buyer’s deposit can be at risk once they remove their contingencies.
How long is escrow?
The length of the escrow can be as little as two days to as many as several months. A common term for this is “estimated days to close” and the exact timeframe is agreed to between the buyer and seller.
An escrow that is a couple of days to a couple of weeks is usually a buyer who is paying all cash. If the buyer is receiving financing, the escrow will usually be a few weeks to a couple of months.
What does closing escrow mean?
Closing escrow is another phrase for the closing of the real estate transaction. You’ll start to hear this phrase toward the last week or so of the estimated closing date.
The closing process consists of both the buyer and seller signing their final documents, the buyer conducting their final walk-through, the lender looking over the buyer’s final signed documents, and more.
Whether you’re buying or selling, an escrow company will be a party involved in your real estate transaction. Knowing what role they’ll play and how they’re involved will help make things clearer as you navigate toward completing your sale.