If you’ve been involved in a real estate transaction or have seen some episodes of the Home Viewing Show, you’ve probably heard someone say, “We’re in Escrow.” But what does that actually mean?
In real estate, “inside escrow” refers to a specific stage in the home buying process when the buyer and seller are working towards completing the sale while a neutral third party holds temporary significant funds and documents. It’s not just a technology, it’s one of the most important and complex parts of a transaction.
This Redfin article will take a closer look at what “escrow” actually means, how it works, and what to expect at this important stage.
What does it mean to be in escrow?
When the house is in escrow, it means that the buyer and seller have signed a purchase agreement, and an escrow account has been opened to securely hold the buyer’s serious money deposit. At this stage, the transaction was formally entered into the closure process.
Escrow accounts hold deposits along with important documents such as purchase agreements, loan documents, and conduct. Neutral third parties – usually the title or escrow officer of the escrow company – will take control of these funds and documents to ensure that all terms of the contract are met before the money or ownership changes.
Simply put, if the agent says “we’re in escrow,” it means that the transaction is officially ongoing, funds and documents are kept secure, and both the buyer and seller complete responsibility for inspection, valuation, final loan approval, and more. Once everything is settled, sales move towards closure and ownership is transferred.
When does escrow begin?
In most transactions, as soon as the buyer and seller sign a purchase agreement, escrow officially “starts” and the buyer submits a serious money deposit (usually 1-3% of the purchase price) to the escrow company. The escrow representative then opens the file and begins coordinating with everyone in the stakeholders, sellers, agents, lenders and title company. This will launch a countdown of important deadlines such as inspections, loan approvals and closures.
The escrow process usually takes 30-45 days, depending on the terms of the contract and the speed at which all parties fulfill their obligations.
What happens if you enter escrow?
Once you enter escrow, the behind-the-scenes work becomes high gear. While we think that escrow simply holds funds, it is also a key time for due diligence and coordination.
Escrow Company leads the management of timelines, documents and communications, with buyers and sellers working through their own responsibilities. Here’s how the escrow period usually unfolds:
1. The emergency period begins
When the escrow opens, the buyer enters what is called the Emergency Period – a window of time (usually 7-21 days depending on the contract) if you can thoroughly investigate the facility and make sure everything is checked out before committing to purchase.
During this time:
Buyers may schedule general home inspections and order specialized inspections (roofs, pests, sewers, etc.). The seller will provide all necessary disclosures regarding the condition of the home, past repairs and known issues. In the event of serious problems, the buyer can request repairs, renegotiate terms, or even cancel the transaction without penalty.
The Escrow Officer will track these deadlines so that contingencies are removed or addressed before moving forward.
2. Evaluation and loan approval
If the buyer is raising funds, the lender orders an independent valuation to ensure that the value of the home supports the agreed loan amount. If the home is lower than expected, the buyer and seller may need to renegotiate, or the buyer may need to come up with a cash difference.
Meanwhile, the buyer’s lender reviews the borrower’s financial and property details as part of the underwriting process. They use ratings, title reports and other documents to ensure that the home is entitled to fundraising and that the buyer has the means to pay off the loan. Once everything is checked out, the lender issues final loan approval and prepares the loan document for signature.
3. Title Review and Escrow Adjustment
Escrow and title teams do their own work while buyers complete inspections and secure funding.
A title search is performed to ensure that the seller has clear ownership and ensure that there are no liens, unpaid taxes, or legal claims on the property. If you encounter any issues, you need to resolve them before closing them. Escrow Officer manages and distributes documents, coordinates with lenders, tracks emergency removal, and ensures compliance with all legal and contractual requirements.
4. Final walkthrough
A day or two before closing, buyers will carry out a final walkthrough of the property. This is not another test. All you need to do is make sure the house is in the expected condition, that the agreed repairs have been completed, and that nothing has changed since the last visit.
5. Closing and transfer of ownership
Once all contingencies are cleared and everything is going well:
Buyers wire down payments and closure funds and send lenders.
Escrow closes once the act is officially recorded. The buyer gets the key, the seller receives payment and the transaction is completed.
Escrow Contract Vice-Next: What is the difference?
Under the agreement, the buyer and seller agree to the terms and signed the purchase agreement, but the transaction does not necessarily move into a formal closure process.
Escrow means that the transaction has officially entered the next stage. Neutral third parties will retain the buyer’s funds and key documents, and both sides will complete inspections, funding and other closure steps.
Essentially, all sales “inside escrow” are under contract, but not all “under contract” transactions have yet to open escrow.
FAQ: What does it mean to be in escrow?
What is the purpose of escrow in the Home View-in process?
Escrow protects both buyers and sellers by ensuring that money and property do not change hands until all conditions of the purchase agreement are met. It provides neutral third parties to manage funds, documents and deadlines, helping transactions proceed smoothly and fairly.
Is it okay to be in escrow?
Yes – Being in Escrow is a positive and necessary step in the home-being process. This means that your offer is accepted and your transaction is moving forward by protecting both the buyer and seller. Although important deadlines and inspections are included, escrow helps ensure sales are smooth and substantial revenues towards closing.
Do I need escrow?
Yes, escrow is required for most real estate transactions, especially transactions that involve mortgages. Lenders usually require it to protect their investments. All cash buyers may bypass official escrow accounts, but in most cases we will use either escrow or a lawyer to ensure that the sale is handled safely.
How long does escrow take?
Escrow usually takes 30-45 days, but the timeline depends on the loan process, test results, and how quickly the contingency is resolved. With competitive markets and full speed buyers, escrow may close quickly within 15-20 days.
What is normally held in escrow?
Escrow usually holds the buyer’s serious money, signed purchase agreements, loan documents, property deeds and instructions from the parties. These items will be held by a neutral third party until all conditions of sale have been met and the transaction is ready to close.
When will escrow close?
Escrow will be closed when all terms and conditions are met and funds are transferred, and the deed will be recorded with the county and officially transfer ownership to the buyer.
Can the buyer or seller return during escrow?
Yes, but only under certain conditions. If unforeseen circumstances are permitted, the buyer or seller may legally withdraw. Retreating without a valid reason can result in financial penalties and legal consequences.
Who chooses Escrow Company?
Escrow companies are usually chosen by mutual agreement between the buyer and seller, but in some markets it is customary to one party (often the buyer or its agent) that makes the choice.
Can Escrow fall?
Yes, many transactions will close smoothly, but escrow can fall if:
Buyers cannot secure funds. The ratings will be lower and buyers and sellers will not be able to agree to the new price. There are problems with the inspection of the house. There is a problem during the title review.
If the transaction falls apart for accidental reasons, the buyer will usually get his serious money back. Otherwise, they risk losing that deposit.
