Your Escrow Questions, Answered

You may have heard the phrase going into escrow many times without really understanding what it’s referring to. The escrow process can vary from state to state in some of its finer details, but overall it is a relatively straightforward series of events that must be completed before a property changes hands from seller to buyer.

Here we attempt to answer the most common questions about the escrow process in general. As always, if you have questions about your specific transaction, it’s best to ask your trusted real estate professional.

What is escrow?

Escrow is a term that refers to two different aspects of the real estate transaction: the escrow account and the escrow process.

Escrow account

An escrow account is managed by an escrow holder for the purpose of keeping all funds and paperwork related to the real estate transaction under neutral control. This way, if there is a discrepancy or disagreement about some aspect of the transaction, neither the buyer nor seller can control necessary money or documents in order to influence the outcome.

Escrow process

The escrow process refers to the aspects of the transaction that take place between the initial agreement to the sales contract and the closing and recording of documents related to the sale of the property. There are many variables to the escrow process and each is dependent on the specific details of the transaction and the needs and circumstances of each party involved.

What does “opening escrow” mean?

Opening escrow means that the buyer and seller have agreed to terms regarding the purchase of the property and a ratified contract is in place. The opening of escrow starts the clock on a number of time-sensitive aspects of the transaction process, including home inspection and contingencies.

What is the purpose of escrow?

The purpose of escrow is to complete the various legal and financial steps associated with the home purchase. It provides a neutral platform where each party to the transaction can provide money and documentation as needed while other processes, including title search, home inspection, and mortgage approval, take place.

Who is the escrow holder?

The escrow holder can be a real estate attorney, title company, or escrow company. Generally, there will be a specific agent who is in charge of each individual escrow process. This person acts as a contact for necessary information during the escrow period.

Because the escrow holder is a neutral party, their agent should not be asked for advice or consultation during the escrow period. They are there to provide relevant information and to facilitate the timely collection and exchange of necessary materials throughout the process. For advice, consult your real estate agent or broker.

What happens during the escrow process?

During the escrow process, many different activities may take place, depending on your individual circumstances and the complexity of your transaction. In the case of an all-cash transaction with no contingencies, there may be very little activity during the escrow process. However, in most cases, a number of events take place, including the following:

Home inspection

The initial home inspection takes place and may include additional inspections for individual systems or fixtures, or for radon, a termite infestation, or other concerns. This is followed by a report and review period during which the buyers may ask the sellers to correct some or all of the deficiencies identified by the home inspector or to provide additional funds at closing to pay for the repairs. That is followed by a response from the sellers outlining the repairs or funds they are willing to provide, if any.

Contingencies

Besides the home inspection, there may be a variety of contingencies during the escrow period, including:

• financing, during which mortgage underwriting occurs
• appraisal, to determine the correct value of the property
• home sale, during which the buyers may be selling a home of their own

Each of these contingencies has its own negotiation period and specific terms and limitations agreed to in the initial offer.

Title Search and Records Review

The escrow holder will conduct a process to ensure that all the legal documents related to the property are properly completed and recorded as required by law. During this time, the escrow agent or an associate will make sure that any liens, agreements, or title discrepancies (known as “clouds on the title”) are identified and corrected as needed.

How long does the escrow process take?

The length of the escrow process can vary depending on the complexity of the transaction. Problems can arise, including appraisal questions, problems with the mortgage approval process, or other factors that can extend the process.

A very simple escrow for a cash transaction could be completed in as little as ten to fourteen days. In other cases, escrow can go on for months. This is especially common in the case of escrows involving a home sale contingency, where the buyers may need some time to find a buyer of their own and complete their escrow process before being able to obtain mortgage financing on their purchase.

What is “close of escrow”?

Close of escrow is the day when all of the paperwork has been completed and both parties in the transaction have fulfilled all their obligations. In some cases, both parties attend the closing, and close of escrow happens simultaneously. In other cases, the sellers may complete their part of the closing a day or two prior to the buyer’s closing.

What happens after the close of escrow?

After the close of escrow, you may still have to wait a day or two to obtain final copies of all of your paperwork. That’s because some of the documents have to be filed with the local government authorities to maintain accurate property ownership and tax records.

By Christy Murdock Edgar