An escrow company is an independent third party in a real estate transaction whose primary role is to protect the interests of all parties involved in the sale.
Most people assume that only these four parties are involved in the sale of a home:
- Buyer
- Seller
- Buyer’s agent
- Seller’s agent
But you can add one more to that list.
The escrow company.
They’re the neutral party between the buyer and the seller.
What does an escrow company do?
An escrow company holds the funds and documents as the seller and buyer negotiate the contract and sign disclosures.
At a high level, an escrow company is responsible for three things in a real estate transaction:
- Handling the funds between the buyer and seller.
- Making sure that the buyer doesn’t receive the deed to the property until the conditions in the purchase contract are met.
- Ensuring the seller doesn’t receive any funds until those same conditions are met and the transaction is closed.
For sellers, an escrow company completes additional tasks throughout the process of selling your home.
Some of these include holding the buyer’s earnest money deposit, handling the payoff of any existing mortgages, and more.
For buyers, they work with your lender to ensure that all loan documents are in order, coordinate your final signing, and provide a statement of all costs associated with the sale.
What is an escrow officer?
An escrow officer is a representative at an escrow company who is assigned to the sale of a property.
They’re also referred to as an “escrow agent.”
An escrow officer’s role is to only provide escrow services — while not giving any advice to either party.
They can objectively discuss the instructions for the closing to take place, but they must remain completely neutral.
They’ll usually communicate with all parties throughout the escrow process.
It’s the escrow officer’s job to make sure all of the T’s are crossed and all of the I’s are dotted before the sale closes.
Is a title company and an escrow company the same?
In short, no, an escrow company is not the same as a title company.
A title company handles the transfer of a home sale from a legal perspective.
They do things such as:
- Verify who holds title to the property at the time when the purchase contract was ratified.
- Check for existing liens on the property.
- Provide title insurance to the buyer and lender to protect them from any future potential property ownership disputes.
Their role is to ensure that all rights and interests of a property are in line to proceed with the transfer of the sale.
Whereas the escrow company holds and manages the funds until all of the conditions are met by all parties.
In some parts of the country, the escrow company will be a part of the same company as the title company (e.g. Northern California).
And in other areas, they are two different services.
Who opens escrow in a real estate transaction?
The real estate agent will usually open escrow, but technically, it’s the buyer’s or seller’s choice.
Whether it’s the buyer, seller, or agent, depends on the region.
For example, in California, it’s very common for escrow to be opened by the seller’s agent before the home is even on the market.
In other parts of the country, it’s common for escrow to be opened by the buyer’s agent after the contract has been ratified.
Final thoughts
Escrow companies play a valuable role in safeguarding the interests of both sellers and buyers.
From holding earnest money to disbursing funds, they assure that key steps of the transaction are properly executed.
This is why working with a reputable escrow company is important when buying or selling a home.
