When you are buying a property, the main thing that you need to focus on is to keep a big amount of money aside. But the transaction of such a big amount is very risky, as you first have to fulfil all the clauses and agreements and then the money is transacted. For situations like these, escrow is very helpful. Escrow is the home buying process where the payment is kept safe by the third party until the deal is closed and the house officially changes the hand.

To help you all understand the concept of escrow in a better and informative way, in this article, we will be telling you each and every detail about escrow and its importance. So, here have a look at the blog.

What is Escrow?

Escrow is an agreement between two parties where one is selling the property or working for the other party in exchange of money and to transact such big amount a third party is also involved in the financial agreement who regulates and holds the payment in an escrow account or to themselves. When all the clauses are completed and all the terms of the financial and home agreement are met as discussed and overseen by the escrow company, then the third party transacts the amount to the second party.

The concept of escrow is very useful in case of transacting a large amount of money and where many obligations and clauses need to be fulfilled. For example, you are borrowing mortgage loan from a bank, then you will get an escrow account, where the lender will deposit the monthly mortgage payment. And by collecting the amount each month, the escrow account reduces the risk of you falling behind on your obligations to your insurance provider.


How does Escrow works?

The Escrow officer is the third party- someone who is forming the closing company, an attorney, or a title of company agent (an agent may vary from the state). The third party is the one who assures to make everything sort so that the closing proceeds smoothly and includes the transfer of money and all documents. It protects all the necessary parties ensuring that no funds and property change hands until all the necessary requirements have been met.

Why is Escrow important?

When you plan to buy a home and pay the first instalment, the paycheck of the first instalment is then placed in escrow. Which means the payment is not directly going to the seller. It will be saved in the escrow account that we can consider the third party. And until all the legal work is done, nor you neither the seller can touch it, as it is securely saved in the escrow account. Thus, the escrow account in important to both the parties.

For instance, if the buyer pays the first instalment and for some reasons, the legal agreement and paperwork is not done, then the buyer can easily get the money back and won’t have to repeatedly ask the seller to give it back. And same goes for the seller, if both the parties directly pay and sell the property and if the seller signed the property papers in the name of the buyer and the buyer does not pay the whole payment because of any reason, then it can be a big legal issue. But by using an escrow account, you won’t have to handover property without getting cash at first place and vice versa.

How much does escrow cost?

The escrow cost varies as per the buyer and seller. Both parties pay the fee which is about 1% to 2% of the total cost of the home.

How does Escrow protect buyers and sellers?


An escrow protects the buyer and seller from the risk of losing money and losing property respectively. For example, the buyer has a home inspection of the house and sees that the roof needs to be repaired and the seller admits to repair the roof. However, if the buyer still does not find the roof repaired as much as they were expecting. In this case, the seller won’t see the pennies of the buyer’s money until and unless the seller fixes the roof as per buyer’s requirement. Thus, if both the parties go for an escrow, then the seller will surely get the money in exchange of his property and the buyer can maker seller do all the legal work or repair work that is mentioned in the agreement and until the agreement clause is fulfilled, the buyer’s money is safe in the escrow account.

Once the transactions from both the parties have been deposited completely in the escrow account and the legal work and agreement is signed, then the earnest money deposited will be submitted to the escrow holder. And the flow of money must not be in an irregular manner otherwise it can be an issue. Because an escrow holder obeys only the instruction written in the agreement.

The duties of escrow holder include but are not limited to:

  • The coordination between the flow of documents and funds.
  • Arranging the order of search and this will indicate the record of ownership.
  • Responds to the lender’s requirements.
  • Responds to the authorized request from the parties about the transaction.
  • Facilitate the signing of the loan documents.
  • The closing of the escrow account when all the conditions are met and funds as per the instructions.

Is Escrow important while purchasing the house?

Escrow serves as a neutral state for the depository for the exchange of documents, information, money and closing the deal. Escrow is not mandatory when a house is being sold but it is highly recommended. Only the risk of losing money or property is reduced by giving a chance to escrow. The escrow agent is a trustworthy agent by the bank or by an ensured company who cares to assure that the documents, records and information are provided on time and the parties are satisfied with the requirement of the timely transaction. Since the sale or purchase of the home is one of the most important parts of the one’s life. As in includes the hard earned money or property of both the parties respectively.

Escrow plays an important role in property transactions. The real estate and the escrow not only just involve sale or purchase but also includes the lease refinancing. The personal property also includes the purchase of the business opportunity, of a mobile home, as well as the handling of the sales and stock transfers. Bulk sales usually involve the sale of a business and mostly the notice is being provided to the creditors before the business when the transaction is completed. The escrow can handle the most important and difficult tasks. After the submission, it tells that escrows are not utilized solely on real estate matters and can have benefits for cases which are real and have own personal property transactions. The exchange of cash for the property is not as simple as we think.


In most of the processes of real estate, it includes billions of hurdles which has to be passed on. The unique thing about the escrow is that it provides the protection of the parties involved and arises over those hurdles; It is just like putting on a helmet for security and safety.

If you are a lender, seller or a buyer, just make sure that no property, assets do change the hand rights away. There is a certain period of time where the transaction requires specification. The person who is holding the privacy of consumer might protect important documents and funds as well. And the person who purchases the property usually faces many difficulties in terms of money in the purchase. The escrow account procedure includes all the deposits of the decided amount of money and by the agent, it is deposited into the bank. This might be payable only when the seller agrees and the contract terms are completed.

In real estate, there are two types of escrow accounts for the home buying process and the account is being open for the mortgage lender to pay some property related costs. If the escrow account is the part of the loan then the monthly payment should be paid for the insurance and taxes and it also includes the mortgage payment. The monthly payments of the escrow account are being deposited by the mortgage serviceman. The Real estate account is also known as pre-closing escrow accounts. The third party holds the account which is separate from the seller and buyer. It protects all the interests which are being involved in the transaction. These accounts include all funds, paperwork which is required at the time of the transaction. An escrow account provides protection for each and every person and of course for both the parties (seller and buyer).

So, this was all the information about Escrow, escrow account and its importance.

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