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When you enter the real estate market—especially during the peak summer season—you’re likely to encounter new terms that may seem confusing at first. One of those terms? Escrow. Whether you’re preparing to buy your first home or sell your current one, understanding how escrow functions can help you navigate the process with confidence.

What Is Escrow in Real Estate?

Escrow refers to a neutral account managed by a third party that securely holds money and important documents during a property transaction. This system protects both the buyer and the seller by ensuring that the terms of the contract are fulfilled before any funds or ownership changes hands.

For example, when a buyer’s offer is accepted, they usually submit earnest money—typically 1–3% of the purchase price—into the escrow account. This shows they’re committed to the purchase, and the funds remain there until all closing conditions are met.

Why Does Escrow Matter?

The escrow process creates a structured and secure environment that allows both parties to proceed with peace of mind. Here’s why it's an essential part of most real estate transactions:

• It safeguards the buyer’s earnest money in case the seller doesn’t fulfill their obligations.

• It prevents the seller from transferring ownership until the buyer’s financing is confirmed.

• It ensures a coordinated process for inspections, repairs, document signing, and final closing.

Think of it as a built-in safety measure—offering trust with verification.

What Happens During the Escrow Period?

This phase typically lasts between 30 and 60 days, depending on the terms negotiated in the contract. During this time, several critical steps take place:

• A home inspection and appraisal are scheduled.

• The lender finalizes the mortgage approval.

• A title search is completed to confirm there are no legal claims or liens on the property.

• Any agreed-upon repairs are completed by the seller.

• The buyer transfers the remaining balance of their down payment to escrow.

• All required documents are signed and reviewed.

Once these steps are completed, the third party overseeing escrow disburses the funds appropriately and facilitates the official transfer of ownership.

Does Escrow End After Closing? Not Always.

In some cases, an escrow account continues after closing—especially for buyers with a mortgage. In these instances, the lender collects a portion of the property taxes and homeowners insurance each month and holds those funds in a post-closing escrow account. When the annual bills are due, the lender pays them directly on behalf of the homeowner.