What You Need to Know About Escrow in Real Estate

Real Estate


The buyer and seller agree to the terms of a purchase and sale contract and the transaction is headed to escrow.


agree to purchase


What does this mean exactly?


What is escrow?  What does it mean to be “in escrow?” Who does escrow benefit?  What happens to a transaction while in escrow? 

Man q:question mark

These are all excellent questions that often get overlooked in a real estate transaction because the real estate agent is so accustomed to having transactions in escrow he/she might assume everyone is familiar with the term.  But, for those who don’t conduct real estate transactions on a regular basis, the following information may be helpful. 


Let’s look at the questions one at a time.


What is escrow? 


Escrow is essentially a neutral third party acting as a facilitator of a real estate transaction


Both the seller and the buyer give documents to the escrow agent to be held for safe keeping until the culmination of the transaction.


The buyer deposits earnest money into the escrow account to be held and credited against the purchase at the time of closing.

Certified Check


What does it mean to be “In Escrow?”


When a buyer and seller agree to the terms of a purchase and sale agreement, the agreement is said to “signed-around.”  At this point, the purchase and sale agreement becomes a binding contract.


The real estate agent will send the purchase and sale agreement to the title company agreed-upon by the buyer and the seller.


When the title company receives the purchase and sale agreement, the escrow agent will “open escrow.” 


Once and account is open, the buyer can deposit earnest money and both the buyer and the seller, along with the buyer’s lender give instructions to escrow on how to disburse funds at closing.


Who does escrow benefit?


Escrow benefits everyone in the transaction primarily because the escrow agent can only act upon written instructions and those instructions must be mutually acceptable to both buyer and seller.


For instance, the seller cannot ask the escrow agent to release the earnest money without the buyer’s consent.  Both buyer and seller would have to sign a document agreeing to those terms.


An escrow agent represents the title company.  The escrow agent does not represent exclusively the buyer, the seller, the lender, or the real estate agents. 


What happens to a transaction while in escrow?


The life of a transaction starts with the opening of the escrow account and the receipt of earnest money from the buyer.




At this point, there is a title search to examine the history of ownership, to discover any liens against the property, to discover any claims on the property, and to make sure the property taxes are current.  The title search will also reveal any judgments that may be against the property or the seller personally.


The title company will also run a search on the purchasers to discover whether there are any judgments or tax liens that may attach to the property at closing or that the lender should be aware of.  


The goal of the escrow agent is to provide “free and clear” title to the buyer with the exception of the new mortgage and any recorded easements such as those for utility companies. 


The escrow agent will work directly with the seller to remove all liens, encumbrances, and/or clouds on the title.


While the title is being cleared, the buyer is usually busy ordering inspections and getting documents to their lender for final loan approval which will include the ordering of an appraisal to make sure the value of the house is enough to support the loan.




When the title has been cleared and the loan has final approval, the lender will send loan documents to the escrow agent and the agent will work up estimated closing statements – one for the buyer and one for the seller. 


After receipt of the estimated closing statement, there is some time for fixing any issues that may not be quite right and then the escrow agent will schedule signing appointments – one for the buyer and one for the seller.


After all documents are signed and notarized, the escrow agent will send the loan documents to the lender for final review and the escrow agent will send the warranty deed and contract or deed of trust to the county recorders office.


When the lender gives the green light, the lender will wire loan funds to the escrow company and the escrow agent will contact the county and let them know to record the new transaction.


Green light  "All Clear to Fund and Record"


Upon recording, the recorded documents receive “recording numbers.”  These are communicated to the escrow agent and then the agent can disburse the escrow funds based on the instructions agreed-upon by the buyer and seller. 


Typically, the seller’s mortgage will be paid off; any taxes owed will be paid, along with any judgments or extraneous liens.  In addition, real estate agents are paid commissions, HOA dues are handled, and sometimes home warranties are paid for.  The remainder of the funds will typically be disbursed to the seller as proceeds from the sale. 


Real estate agents ususally handle the exchange of keys though at times the escrow company will hold them and hand them off after recording. 


Realtor with keys


As you can see there are a few steps in the escrow process, but the process normally flows very smoothly and efficiently.


Ron and I have a lot of experience with escrow accounts through our real estate business.


We can assist you and answer any questions you may have!


If you are ready to experience an escrow account of your own, now is really a great time to buy in the Vancouver, Washington area.  It’s also a great time to sell! 


Send us an email with any questions, we are happy to help!  


Happy Sun


Also, check out our Market Insider page on our website so you can monitor what’s happening where you are or where you want to be!


Ron and Sherry Patterson