What is Escrow and How Does it Work?

When preparing for a big purchase, such as making an offer on a house or investing in real estate for commercial purposes, the term escrow is bound to come up. After all, that's a lot of money to just leave on the table and trust to a stranger. Escrow accounts help reduce the risks of fraud during these transactions, particularly when handled by a disinterested third-party.

What is Escrow?
The definition of escrow is simply having funds and assets involved in a transaction held by a third-party until an agreement is finalized. The third-party then releases the funds at the same time the buyer receives their new property, as long as all contract terms have been met.

When are Escrow Accounts Used During the Home Purchase Process?
When you make an offer on a house, a deposit or earnest money is usually included when the offer is accepted. That money doesn't go directly to the seller, since sale contracts can fall through for lots of reasons. Instead, that money should go into an escrow account that is protected until all items on the closing checklist are completed.

Real estate transactions can be complicated, so it is not uncommon for some money to remain in escrow even after most funds are released and the title has been turned over. Some reasons for this may be:

  • Pending repairs
  • Final Water/Sewer bill
  • Rent back for delayed move date

How to Open an Escrow Account
While it is possible to find an escrow service online or to look up a local provider, you might want to work through your real estate agent. At Cheng Real Estate Group, we have several trusted partners that will help you through the financial aspect of the purchase with ease.

Escrow accounts are just another part of the home purchase process, and while they’re set up for your protection, they may seem like something else to think about. The good news is that when you work with us, you don’t have to worry about remembering this and other intricate details of buying a home. We will work closely with your lender to help you through the process and keep you informed every step of the way.