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What Does Escrow on a House Mean?

November 29, 2022
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Residential Escrow –

If you’re in the process of buying a house, you’ve probably heard the term “escrow” thrown around a lot. But what exactly does it mean? In short, escrow is a holding period during which essential documents related to property sales are exchanged. Here’s everything you need to know about escrow, including why it exists and how it works.

Why Does Escrow Exist?

The simple answer is that escrow protects buyers and sellers during home-buying. For buyers, escrow protects them from having to hand over their hard-earned money to a seller before all the paperwork has been finalized. And for sellers, escrow saves them from waiting for a buyer to secure funding before paying for their home. Escrow provides a level of security for both parties involved in the transaction.

How Does Escrow Work?

Once you’ve found a home you’d like to purchase and have negotiated a price with the seller, it’s time to open an escrow account. This account will be used to hold onto any earnest money deposits (more on that later) and any additional fees or taxes associated with the sale of the property. Once everything has been finalized, and all the paperwork has been signed, the funds in the escrow account will be released to the seller, and the deal will be complete.

It’s important to note that both buyers and sellers typically have separate escrow accounts; however, in some cases, they may choose to use a joint account instead. Your real estate agent or closing attorney can help you determine the best option for your situation.

What Is Earnest Money?

In addition to paying your agent and other professional fees associated with buying a house, you’ll also be expected to put down what’s known as “earnest money” once the seller has accepted your offer. This deposit shows that you’re serious about purchasing the property and will typically range anywhere from 1% to 5% of the total purchase price.

In most cases, your earnest money deposit will go into an escrow account until closing; however, there are some instances in which it may be paid directly to the seller when your offer is accepted. Again, your real estate agent or closing attorney can advise you on what’s customary in your area.


Now that you know what escrow is and how it works, you can rest assured that your interests will be protected throughout the home-buying process— from offer acceptance all the way through to close. Though it may seem like just another step in an already long and complicated process, remember that escrow is there for a reason: to keep both buyers and sellers safe during one of life’s most significant financial transactions. Contact us to learn more about our escrow services.

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