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Real Estate Word of the Day: Escrow

Escrow is defined as "a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled".

What is real estate escrow?

Escrow is when a neutral third party holds on to funds during a transaction. In real estate, it’s used as a way to protect both the buyer and seller during the home purchasing process. After a property is purchased, the new homeowner continues to put money into escrow as a means of paying mortgage and insurance payments, though this is a little different than real estate escrow

The purpose of escrow is two-fold. It guarantees the seller that the buyer has the funds needed for the purchase and that the money will be handed over once the title is transferred, and it guarantees the buyer that they won’t be scammed by a fraudulent seller who actually holds no claim to a title. Ultimately, escrow helps ensure trust in a high-stakes transaction where neither party may be familiar with each other and where both have a lot to lose.

The escrow amount generally ranges from between 1% to 3% of the total sale price, and is deposited into escrow after an offer is accepted by the seller. The neutral third party safely holds on to the funds until closing when the sale is finalized and the title is transferred over. The total time that funds sit in escrow depends on the length of the closing period. During escrow, the funds are inaccessible by both the buyer and the seller. If the deal falls through, the escrow funds will be returned to the buyer.


We hope this helps you to understand escrow a little more, and the real estate world in general! To read more, check out this great source. Linked below is the article that goes more in depth about escrow and how it applies to the home purchasing process.


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