What Is An Escrow?

Escrow In The State of California is a process that is to ensure protection for all parties to a real estate transaction. Escrow acts as a “neutral third party” or “stakeholder” nominated to hold the funds and process the necessary paperwork, until the purchaser received appropriate assurance that the property had been transferred. An escrow may also be created for other types of purchases, although it is most commonly used during the transfer of real estate. Today the escrow is overseen by an escrow officer employed by an independent escrow company or title company, that is usually selected by the seller.

All parties are protected because the escrow holder (a neutral party to the transaction) will retain funds and documents until all the instructions are fulfilled.

An escrow is created upon acceptance of an offer and within three days of acceptance of the real estate offer, when money and/or documents are deposited with the escrow officer. The escrow officer’s authority is strictly governed by written instructions, mutually agreed upon by the parties involved. Upon opening of the Escrow, the escrow officer will mail out to buyer and seller “Escrow Instructions” which must be signed and returned promptly. Paperwork is also sent by Escrow to the listing agent and the showing agent who works for the buyer side, known as Commission Instructions” which are signed and returned to escrow. This assures the sellers side of the proceeds go to the agents commission due, accordingly based on the commission split that was offered in the Multiple Listing Service. So exclusive buyers agents are paid that way and it usually would not cost the buyer money for commission.

The instructions direct the escrow holder to perform duties necessary to complete the transaction. A few of the tasks which may be required are:

  • Receive and deposit earnest money
  • Order information for payoff of existing liens or loans
  • Calculate and/or prorate taxes, liens, interest, rents, and insurance policies
  • Make arrangements for title insurance protection for the buyer and lender and set up the type of title buyer will take joint tenant, tenants in common, etc.
  • Prepare and/or receive documents relating to the escrow
  • Request and receive funding from new lender when conditions have been satisfied
  • Arrange for recording of the conveyance documents and any other legal instruments required to transfer title to the property pursuant to the terms of the purchase agreement
  • Close the escrow and disburse funds as agreed upon in the instructions
  • Prepare a closing statement for the parties showing disposition of Funds Definition of an “Escrow” from Black’s Law Dictionary A writing, deed, money, stock or other property delivered by the grantor, promissor or obligor into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promissee or obligee. A system of document transfer in which a deed, bond or funds is delivered to a third person to hold until all conditions in a contract are fulfilled.

Fun Fact
Escrow practices evolved many years ago from English common law. The word “escrow” is actually derived from the Middle English (12th to 15th century) word for “scroll”, on which all of the escrow instructions and lists of properties were recorded. ( I am sure the did not deal with prices like we have now back than ) **Remember – in California it is usually the Seller Choice on who to use for Escrow and Title also for termite work which escrow will provide a clearance before close of escrow (unless it is bankowned of short sale purchase that are sold as-is)

Call or email me with any questions this article spurs I can further elaborate on to better help you. Email: Suzanne@coastalbuyers.com 27 years experienced Realtor and Buyer Only Broker.