What’s Escrow?

Whether you have limited knowledge of real estate jargon or are considering buying property for the first time, understanding what “escrow” means and how the home-buying process operates is crucial.

What does escrow mean exactly?

Escrow is simply a non-biased third party that holds important payments and paperwork before closing. So, what does it mean when we say, “Your house is in escrow”? It typically indicates that a third party is holding the buyer’s earnest money and any other negotiations or paperwork until all parties meet contingencies and agreements. At closing, the escrow officer records the transaction, officially transferring the property to the new owners.

Is using an escrow service necessary?

Escrow services protect both parties from potential exploitation during the home buying/selling process. For instance, if the buyer requests plumbing repairs before moving in and they’re not completed by closing, an escrow officer ensures the buyer’s money isn’t released until the work is done. Escrow guarantees that all contingencies are fulfilled and money remains secure.

What is the cost of using an escrow service?

The cost of escrow depends on the service provider, which could be the closing company, a title company agent, or an attorney. Both parties typically pay about 1%-2% of the home’s cost to the escrow company. Ultimately, the escrow process safeguards you from potential exploitation, whether you’re the buyer or seller. Despite appearing as an additional expense in the home buying/selling journey, it’s essential and significantly impacts the transaction. If anything, it provides peace of mind as you navigate one of life’s biggest investments.

Do you believe the escrow process is vital for a smooth transaction? Share your thoughts in the comments below. Check out “Preparing to Buy Your First Home” for more tips and information on home buying.