The Ins and Outs of Escrow

Whenever you buy a home, escrow funds are deposited. But where do those funds go and what are the duties of the escrow holder? The Different Types of Escrow Escrow is one of those words that can be used as both a noun and a verb. You may hear it referred to as earnest money or you may hear someone say, “My property taxes are in escrow.” As a noun, it refers to funds, a bond, deed or even a piece of property.


As a verb, it means to place one of the above-mentioned items into an account. For the purposes of this article, it means earnest money.

No matter what form your escrow takes, it is handled by an impartial third party until all details and requirements of the transaction are met. When that occurs the funds may be released back to the original owner or passed on to the new owner, depending on the situation. Escrow As Earnest Money As soon as you make an offer on a property and it is accepted, a payment is due. Often called “earnest money,” these funds indicate to the seller that you are serious about buying the property.

Although you give the check to your realtor, he or she does not hold on to it. Rather it goes to an agency along with a copy of the purchase agreement. You receive a receipt for your check while the agency holds on to the funds and all related documents until the sale process is complete. Duties of Your Agency The basic duty of an agency is to ensure that no money changes hands until all of the requirements needed to sell the property have been met. This means the company will not release any funds until the loan has been approved, the real estate title search and inspections have been completed and all paperwork has been appropriately signed. The agency is typically a real estate title agency or, in rare cases an individual with fiduciary responsibilities, but it must be an impartial third party to all sides involved in the transaction. These agents receive paperwork and instructions from every party involved in the transaction. In this way, the agency serves as a depository of sorts.


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