What Does An Escrow Company Do In Real Estate?

If you’ve done a real estate transaction in your life, you’re probably at least familiar with the concept of an escrow company. But there is also a good chance that you mostly communicated through your realtor and never really understood the whole role that the escrow company played in the transaction. So if you’re interested in the purpose of the escrow company? Who do they work for? What service do they provide? This article if for you.

So what does escrow do? Think of escrow as the neutral third party between both sides of a transaction. The Switzerland, if you will. The escrow company is traditionally chosen by the seller (or sellers agent more specifically), but they work for both the buyer and seller. Their cost is also traditionally split 50%/50% between both parties. Total cost is usually about 1% of the purchase price, so about .5% cost to each side.

Once “escrow is opened”, the escrow officer will give the buyers a secure account number in which all funds will be held until the end of the transaction. Remember those movies/TV shows where drug deals were going down and neither side wanted to hand their stuff over to the other first, so they both gave it to a third party to verify… that’s escrow.

Escrow also ensures that all of the proper documents are received by both sides and provides assistance with certain parts of the deal. For example, if the property is a condo, escrow will usually order the HOA documents for the transaction and send to the buyers to review during the disclosure period. Escrow agents can also provide notary services, which are needed for the grant deed and during the loan signing.

So now you know. Escrow is a critical part to the transaction, but usually operates behind the scenes.

This question was originally asked on episode 2 of my Ask A Realtor web series. I brought on Natasha Keitges from Foundation Escrow in San Diego to help me answer it. Check out the video below (around the 3:23 mark):

I originally posted this article on my LinkedIn Profile on 8/30/16 — Jason