What is Escrow?

The escrow process is an important final step in many real estate transactions. But what is escrow?

 A house in the escrow process

Escrow is when two parties deposit funds and documents to an impartial third party. These funds and documents set the terms and conditions for the transfer of property ownership. The escrow holder delivers the funds and documents upon completion of the terms of the escrow instruction.

The escrow process is mainly carried out by the escrow holder and real estate agents. Documents are “in escrow” when the parties deliver documents and money to the impartial escrow holder. We may also say the parties have “opened an escrow”.The escrow holder keeps the documents and funds for further delivery until the parties meet certain conditions. Each of the principals of the escrow (Seller, Buyer, Lender) will give the escrow holder written instructions setting out the conditions for further delivery.

The purpose of an escrow.

An escrow is commonly used to enable the parties in a real estate transaction to deal with each other with less risk. The escrow holder acts as:

  • Custodian for funds and documents.
  • A clearing house for payment of all demands.
  • An agency to perform the clerical details for settlement of the accounts between the parties.
A typical escrow transaction.

The escrow process begins with the Realtor® opening the order for title work. The Realtor® also provides the Purchase Agreement and all executed documentation to escrow. Once received, your escrow holder will prepare a preliminary report. Upon receipt of the preliminary report, an analysis determines the necessary action and documents required to complete the transaction:

  • Demands for satisfaction of liens not acceptable to Buyer and/or Lender.
  • Documents for recording.
  • Instructions and requirements of the new Lender.

In most areas, the information gathered from an escrow prepares Buyer and Seller instructions for signature. The escrow is “in perfection” when it meets all the title and financial requirements and the instructions from all parties are fully complied with. Once the financial settlement takes place, the escrow holder records the documents and issues the title insurance policies.


A real estate agent can make better sense of the escrow process for you. Linda Archie has the professional expertise to make your home buying or selling experience stress-free and fun! Learn more about Linda Archie and her real estate team or contact her.