Escrow is a neutral third party—a company or an attorney—that holds onto funds, documents, and other assets related to a real estate transaction until all conditions of the deal are met.
Escrow serves as a safeguard for both the buyer and the seller. Here’s how it works:
Deposit Protection – As a buyer, you’ll typically provide an earnest money deposit when making an offer on a property. This money is placed into escrow to show your commitment to the purchase. It demonstrates to the seller that you’re serious about the transaction.
Inspection and Contingencies – During the inspection period, certain contingencies may need to be met before the deal can proceed. Escrow holds onto the funds until these conditions are satisfied.
Closing Process – Once the transaction is finalized, funds held in escrow are disbursed to the appropriate parties, e.g. the seller, real estate agents, etc. On occasion, issues may arise at the closing table. Holding additional funds in escrow is sometimes a way to finalize the sale and resolve the issues after transfer of title.