5 Easy things to remember when in “Escrow”

5 Easy things to remember when in “Escrow”

If you have purchased or sold a home you have most likely have heard of the term “being in escrow”. However, many potential home buyers and even some homeowners aren’t exactly sure what that means. In this article we will explain the top 5 things to remember about being in escrow and why it is important to the real estate transaction process. 

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1. What does escrow mean? 

According to the Oxford Dictionary, escrow is defined as the following: 


noun : a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled.

Verb : place in custody or trust

Escrow or an “Escrow Agent” is the middleman in real estate transactions and transfers. They are the impartial third party of the transaction that safeguards the funds for the transaction. They ensure all conditions are met before any official transfer or closing of any escrow. 

2. Earnest Money Deposit 

When potential buyers are looking to place an offer on a home they typically indicate the amount of money they will place in escrow upon acceptance. They do this to ensure their offer is taken seriously by the sellers. This is called the earnest money deposit, also known as the “EMD”. And it is usually a percentage of the purchase price they are offering and or simply a set amount typically ranging between $5,000 to $10,000 for the average home. 

money secured in escrow
Photo by Reynaldo #brigworkz Brigantty from Pexels

Buyers send their EMD as soon as escrow is opened, or within the specific timeframe listed on the purchase contract. Once the EMD is with escrow, it remains in the buyers and sellers escrow account while under contract and released at closing or cancellation. 

The seller will only receive the earnest money deposit from escrow if the transaction successfully closes or when the buyer has cancelled after releasing all contingencies. 

The buyer will receive the EMD back if the seller withdraws from the contract for non valid reasons or if the buyer finds any issues during the contingency period that would cause them to not want to purchase the home.

3. Down Payments 

As a transaction progresses positively the buyer will at times have to deposit a down payment into the escrow account. The buyers money will still be protected by escrow until all of the conditions listed in the contract are completed. 

For example the seller will not be able to receive any money until any negotiated repairs are completed. Or if the buyer is able to obtain a mortgage. 

Funds are only released to the seller after the real estate transaction has closed. This includes signing off on all financial statements, tax documents, and others required by law. Once all of these conditions are met and all documents signed it is then determined by escrow that the down payment along with the remaining selling price funds can be released to the seller. 

Additionally, those funds received by the seller are minus all fees associated with the transactions. Such as escrow fees, reports, commissions and taxes.

4. Escrow is security for buyers and sellers 

depiction of a safe that reflects the security of escrow
Photo by Gabriel Wasylko on Unsplash

Real estate transactions involve large amounts of money. It’s always in the best interest for both buyers and sellers to involve an escrow because it will give protection for both parties. In the simplest terms they are just a holding account that cannot be touched by any party. 

Having funds in an escrow account ensures that all funds are held until all conditions of the purchase contract has been completed. 

5. How long is escrow? 

The length of escrow is determined by the purchase contract. For example on the C.A.R. forms residential purchase agreement (RPA) you can find the escrow period on page one. To be more specific it will be listed under section 1D. 

On average most escrow periods last around thirty days to forty five days. But there are occasions when escrow periods can be extended out past the time indicated on the purchase contract. These instances will most likely have agreements drawn up and signed by both parties agreeing to this extension of time. 

The documentation used to extend escrow can either be drafted up directly by escrow and/or with the C.A.R. form “Extension of Time Addendum”, also known as the ETA. 

Do you have additional questions on this? Feel free to email us at bryan@transactiongal.com and we will be happy to answer any questions you have! 

You can also inquire about our transaction coordinator service we provide to California real estate agents. We look forward to hearing from you.

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