Buying or selling a home can be an exciting, yet complex process. Along the way, you’re likely to encounter terms and concepts that may be unfamiliar with. One such term you might come across is “in escrow.” But what does “in escrow” mean exactly, and why is it an important part of the real estate transaction process?
In this blog, we’ll take a deep dive into the world of escrow and help you understand its significance in the world of real estate.
What Does “In Escrow” Mean for Homes?
When a home is said to be “in escrow,” it means that the property is in a transitional phase of the home buying or selling process. During this period, various tasks, documents, and funds are managed by a neutral third party known as the escrow agent or escrow company, such as Galaxy Title & Escrow.
The primary purpose of escrow is to protect the interests of both the buyer and the seller, ensuring that the transaction proceeds smoothly and that all parties meet their respective obligations.
What Happens When You Go Into Escrow?
Now that you better understand what exactly it means to be “in escrow”, it’s also important to know how the escrow process works.
Below is an easy-to-understand breakdown of what typically happens when a home goes into escrow:
The Seller Accepts an Offer: The escrow process begins once the offer has been accepted by the seller. Once the two sides come to an agreement the purchase agreement, or contract, is signed.
The Buyer Puts a Deposit in Escrow: Once the contract has been signed, the buyer then puts down a deposit on the property. This deposit is often around 20% of the total purchase price. This deposit is held in escrow.
Buyer Schedules Inspections: Once the deposit has been made, the buyer has a period of time where they can have the property inspected. Based on the results of the inspection, contingencies are negotiated to cover the cost of necessary repairs. This is known as the contingency period.
Title Company Conducts a Title Search: While the inspection period is happening, the escrow agent will conduct a title search to ensure that the property’s title is free and clear of any liens.
Mortgage Lender Provides Loan: If the buyer gets a mortgage, the lender will conduct its due diligence during this time to approve the loan.
Buyer and Seller Make Agreements for the Sale: Once financing has been secured, both the buyer and seller will provide their respective escrow instructions, outlining the conditions for the sale.
Funds and Documents are Transferred: After all conditions have been agreed upon and met, the escrow agent will facilitate the transfer of funds from the buyer to the seller and oversee the transfer of the property’s title.
The Deal is Closed: The closing is the final step in the process. That’s when all the final paperwork is signed and property ownership is officially transferred.
Is It Good To Be In Escrow?
In short, being in escrow is a good thing because it means that the entire process is moving in the right direction. To be “in escrow” means that both parties are actively working toward the completion of the sale.
While being in escrow does mean that things are moving in the right direction, it is important to remember though that just because the property is “in escrow” doesn’t automatically mean that the deal will finalize. There are still issues that can come up during the “in escrow” process, such as real estate legal issues, that can lead to the deal falling through.
Why Do Houses Go Into Escrow?
The main reason why escrow exists is to protect both parties during the entire transaction process. Buying and selling a property involves a lot of moving parts and escrow helps keep everything organized and on track.
Beyond just keeping things on track, escrow can also help with the following:
Ensure title clarity
Facilitate the transfer of funds
What Should You Not Do During Escrow?
So far we have talked about all the things that take place during escrow, but it’s also important to go over some things that you should be careful not to do during escrow:
Do not make major financial changes
Don’t skip inspections
Don’t Ignore deadlines
Don’t disregard escrow instructions
Don’t neglect your financial obligations
Don’t skip the final walkthrough
Don’t make sudden changes to the loan
Avoiding these fairly common mistakes can increase the likelihood that the transaction is not just successful but also as stress-free as possible.
Is Escrow the Same as Closing?
While escrow is part of the overall closing process, the two are not the same thing.
Escrow is a period during which funds, documents, and other items necessary for the sale are held and managed by a neutral third party. Closing, on the other hand, is the final step in the process when the actual transfer of ownership takes place. Review our FAQ to learn more about the closing process.
How Long Can Money Be Held In Escrow?
The amount of time that money is held in escrow varies depending on the specifics of the transaction, including the terms outlined in the contract. While the escrow period is typically anywhere from 30-60 days, it can be longer or shorter depending on what both parties agree to.
Some factors that can influence the length of the escrow period include:
Any title issues
Get Help with All Things Escrow at Galaxy Title & Escrow
Navigating the world of escrow can be complex, but having the right professionals by your side can make the process much more manageable. At Galaxy Title & Escrow, we specialize in helping buyers and sellers through every step of the escrow process. Our experienced escrow agents are dedicated to ensuring that your real estate transaction proceeds smoothly and that your interests are protected.
Contact us today to learn more about how we can assist you with setting up an escrow account and closing on your dream home!
Mitchell Issa (Reviewer)
Mitchell has been a licensed attorney since 2014 and has practiced in both the transactional and litigation fields of law. His experience allows him to approach every transaction with a depth of knowledge and practical experience most attorneys do not possess. Mitchell prides himself on providing top notch service to his clients.
Mitchell Issa (Reviewer)What Does “In Escrow” Mean for Homes?