You’ve probably heard of it and you may have even been in it, but what, exactly, is escrow?

Escrow is a neutral third party that has custody of something of value.

Making an Offer

When you make an offer on a home, you are required to give an Earnest Money Deposit (typically 3% of your offer price) to escrow. Escrow holds onto this deposit until escrow is closed and the home is sold. The seller does not receive these funds until the buyer has agreed to close escrow and complete the purchase of the home. This protects the buyer in case the purchase does not go through. If escrow was canceled, the deposit funds would not be released until both the buyer and the seller agree to a distribution of those funds and sign off on the release of funds.

Lenders & Escrow

When obtaining financing to purchase a home, your lender will work with escrow to ensure a smooth transaction. Escrow will work with your lender to arrange the final signing of all of your loan documents, so that the lender can fund your loan. Your lender will fund your loan by wiring the loan amount into escrow and you will wire in the remainder of your down payment as well as enough funds to cover your closing costs. The amount you need to submit to escrow will be provided on an Estimated Closing Statement.

Closing Escrow

Escrow is closed once the grand deed is recorded by your county registrar. Your Escrow Officer will ensure that the grant deed is recorded and that all documents are processed. Escrow will then do all of the final calculations with the lender, property tax payments, HOA dues, insurance premiums and any other prorated payments. A wire will be sent to the seller for the proceeds from the sale and to pay off any mortgage debt they have on the home. Escrow will create a Final Closing Statement and provide that to both the buyer and the seller along with a refund check returning any extra funds.

Hold-Back of Funds

Occasionally, you may have an escrow that requires a hold-back of funds. This can be required when the seller has asked for a rent-back for a period of time after escrow closes. A daily rental rate will be agreed upon between the buyer and seller and a certain amount of the seller’s proceeds may be held-back and released once the seller has turned the home over in the condition agreed upon.

With new construction purchases, you may have money that remains in escrow until you sign off that all work has been completed.

If the seller has agreed to make repairs to the home and on your final walkthrough, you find that they have not been repaired, your real estate agent can request a portion of the funds be held-back until the repairs are made.

Final Closing Statement

The final closing statement that will be sent to you is very important. As soon as you receive it, you and your real estate agent should carefully review it and make sure there are no errors. Once you are satisfied that it is correct, file it with your important documents. You will need this document when you file your taxes. You want as many tax deductions from your home as possible and this document will help your tax preparer!


Escrow’s fees are part of your closing costs. As a buyer, you may ask seller to pay some or all of these, or you may be responsible for your own fees. Escrow fees vary widely by region, but you should ask your real estate agent for an estimate of what they will be in your area.

Overall, escrow is an integral part of the home buying process. They work with both the buyer and seller to bring your transaction to a successful close!

What is Escrow?