What Does the Word “Escrow” Mean?

You’ll hear the word “escrow” throughout the process of buying a home, but what does going into escrow mean?

Sometimes, you’ll hear a home referred to as “in escrow” (or “pending”), this means the house is not sold, but a deposit has been taken and a deal is in place to purchase the home and everyone is now doing the tasks that get you from the initial offer to the closing table.

Of course, a deal is never done until the ink is on the contract and the seller’s money is in their bank account. So, if you’ve found the perfect home but you learn that it’s already in escrow, there’s no harm in expressing your interest with the agent. 

The majority of real estate transactions at the escrow stage go smoothly, however, there are times when things don’t work out and a home comes back on the market. The escrow process is designed to ensure the transaction is finalized before the buyer pays the seller in full. 

The bottom line is, escrow agents ensure that all of the money goes to the right parties and in the right amounts – HOAs, taxes, lender fees, the seller, and any additional items like surveys are paid for (all of the closing costs for both parties). Think of them as the traffic cop for the money involved in a real estate transaction. As we use title companies to facilitate the handling of funds, they also work to ensure a clean title, issue title insurance, and make sure there are no liens against the property.

Confusion with the word escrow often arises because it’s used in different contexts. For example, “escrow accounts” are used by homeowners to pay off property taxes and insurance through their monthly mortgage payments. 

Lenders are allowed under law to collect these costs as part of the repayment schedule.

Linked to this is the phrase “escrow shortage”. This refers to an owner having insufficient funds in their escrow account to meet the tax bill. Typically, your lender will adjust your monthly mortgage payment to pay this off across the following 12 months.

Here are three common questions about a property in “escrow”.

What does an escrow agent do? – They are independent of the buyer and seller. They hold monies, such as a deposit, through the process of the transaction. In the event someone terminates, depending on the terms of the contract, they would handle giving the deposits to the appropriate parties.

How long is a home in escrow? – A typical resale home is in escrow for around 30 days, but a buyer and seller can negotiate a longer period if the buyer wants additional time to sell their own home. New homes can be much longer depending on when in the build process a home is purchased – if starting from the lot and designing and building from the ground up, a home could be in escrow for over a year.

When does an escrow end? – When all legal papers are signed, the property deed is put into the buyer’s name and sent for registration with the local authority. At this point, the deposit and additional funds are paid to the seller. The buyer can then move in and is officially a new homeowner.