What Is Escrow And How Does It Work When Buying A House?

20 January 2020
 Categories: Real Estate, Blog


There can be a lot of confusing terms and steps in the homebuying process, especially for anyone who has never gone through it before. One part of this process you might be confused about involves something called escrow. If you are wondering what escrow is and how it works, here are some of the most important things you should know about it.

What escrow is in a real estate deal

Escrow is a word used to describe when a third party is involved in a deal. This third party is a neutral party and is responsible for holding onto funds throughout the process of a real estate deal. Funds collected at the beginning of a real estate deal will remain in escrow until the deal closes. At that point, the funds are dispersed as stated in the closing documents.

Why it is used

Escrow is used for a number of reasons, but the main reason is to have a safe place for funds to remain during a transaction. When you are the person buying a house, you will have to give a deposit, called earnest money, when you make an offer. The money you put as your earnest money does not go straight to the seller of the house. Instead, it goes to escrow. There, your money is safe and will be returned to you if you decide not to buy the house and have a legal reason for making this decision. If you go through with buying the house, this money will end up going to the seller as part of the payment he or she receives from selling the house.

The effects it will have on you as the buyer

Using an escrow account is a normal part of almost every real estate transaction. As a buyer, having your money in escrow protects you. You can be certain that this money is simply being held while both parties work out the details of the house sale. You can also feel safe knowing that you will get the money back if there is a valid reason for you to void the deal and not buy the house you are trying to buy.

Hopefully, you understand what escrow is now and why it is a necessary part of buying a house. If you have any other questions about it, you might want to talk to a real estate agent for more information.

To learn more, contact a full-service real estate agent.