Escrow is most commonly thought of in regards to home purchase or real estate transactions. When buying or selling a home or real property, the transaction must go through the escrow process. In real estate, escrow serves as a neutral third party between the buyer and the seller. The escrow account is a holding place for all funds, instructions, and documents necessary for the purchase of the home, including the buyer’s funds for the down payment, the lender’s funds and documents for the new loan, and the seller’s deed. The primary job of the escrow company is to facilitate all aspects of the transaction, and to ensure that the escrow instructions are followed for a successful completion.

How Real Estate Escrow Works
In general, escrow begins when the purchase contract for the seller’s home, along with the buyer’s down payment or earnest money, is delivered to the escrow company. The initial escrow instructions and other documents related to the transaction are prepared by the escrow company and delivered to all parties.

In addition to the actual purchase price of the real estate, other costs associated with the sale of the real estate are also handled through escrow. This includes but is not limited to inspection costs, recording fees, realtor commissions, notary fees, and other negotiated items. Once the terms of the purchase agreement are met and the escrow instructions have been carried out, the escrow company will facilitate the close of escrow, also called settlement.