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Escrow 101: Keeping Homebuyers and Sellers Protected.

An escrow account acts as a safe, neutral space where money and important documents are held during a real estate transaction. It helps protect everyone involved—buyers, sellers, and lenders—by making sure that nothing changes hands until all the conditions of the sale are fully met.

While it might seem a bit complex, escrow is actually one of the key protections in the homebuying process.

What does escrow mean in real estate?
Escrow is a legal setup where a neutral third party—often an escrow officer or company—holds key items like the earnest money deposit, signed purchase agreement, and other important documents until the transaction is complete.

This process helps protect both the buyer and the seller, making sure no money or property changes hands unless all conditions of the agreement are met.

How Escrow Works in a Home Sale

What is escrow in a home sale?
Escrow is a neutral process that helps protect both the buyer and the seller during a real estate transaction. A third-party—usually someone from the title company, an attorney, or a closing agent—manages the process to make sure everything goes smoothly.

What does the escrow agent do?

Your escrow agent or officer will:

• Safely hold the buyer’s earnest money (a good-faith deposit).

• Collect important documents like disclosures and inspection reports.

• Make sure all contract conditions are met (like loan approval or repairs).

• Once everything is completed, they'll transfer ownership, release the money, and close the deal.

What Does Escrow Cost?

Escrow fees usually range from 1% to 2% of the home’s price, but the amount can vary based on your location and contract terms.
Who pays? It depends—some areas split the cost between buyer and seller, others may assign it to one party.

What Is Earnest Money?

Earnest money is a deposit the buyer makes after the seller accepts their offer.
Think of it as a promise: “I’m serious about buying this home.”
This money is held in the escrow account until closing.

If the buyer backs out without a valid reason, the seller may get to keep the deposit.

Can Earnest Money Be Borrowed?

Usually, buyers use their own money for the earnest deposit—especially since it’s paid before the mortgage is finalized.
In some cases, a lender might allow the funds to be part of the loan, but that depends on the lender’s rules and the buyer’s situation.

How Escrow Protects Both Sides

For Buyers:
If a seller agrees to make repairs and doesn’t follow through, the buyer’s money is protected—it won’t be released until everything is done right.

For Sellers:
If a buyer walks away without cause, the seller keeps the earnest money. It helps cover time lost and possible costs while the home was off the market.

Why Escrow Matters

Escrow keeps the homebuying process fair, organized, and safe. It protects everyone involved and ensures that money and property only change hands when all the conditions are met.

ideal schedule and initial steps to purchasing a home: