Law of averages says you probably never use the word “Escrow” in your day to day conversations with colleagues, friends and family. While Escrow can actually mean many things, when it comes to a Real Estate Transaction, the most basic way to look at it is as a third party, uninvolved entity that is the mediator between a home seller and a home buyer.
This third party will collect things such as your earnest money (the check you wrote when you originally put your offer in on a home), documents such as the sales agreement and inspection reports. They will also prepare the deed and record it with the County when everything is finished and the escrow will close.
Escrow is someone with nothing to gain or lose from your real estate transaction. Depending on where you live, that third party, an escrow agent, title agent, or closing attorney, is the person handling your escrow process. They will juggle all incoming paperwork and money from buyers, sellers, agents, lenders, and assorted others. They will arrange the title search, give each party instruction, schedule the closing meeting, disburse all funds, and see to it that everything that needs to be recorded with the county is completed.
Holding Back Funds
There are some circumstances when funds will continue to be held in escrow after the ownership transfers to the buyer.
For example, maybe during inspections there were things you discovered that were wrong with the home. In cases such as that, funds will be held back, until all the work is performed and the costs of the work are covered.
Or, maybe you have agreed to let the seller’s family stay in the house for a short period of time. This is what is referred to as “rent back”. Most likely, your agent will suggest to have escrow hold back a portion of the seller’s proceeds until they’ve moved out and left the home in the condition agreed to in your contract.
Close of Escrow
When buyer and seller have signed all the paperwork and all the funds have come in, the closing agent disburses the funds and oversees the recording of the documents with the county.
When the deed is filed, title to the property is transferred to you, the new owner. The deal is complete. The escrow is closed.
You and the seller will receive a final closing statement and other documents in the mail. Check the statement carefully and call the closing agent immediately if you spot an error. File the statement with your most important papers. You'll need it when you file your next income tax return.
