The Real Estate Encyclopedia
What Is Escrow?
Category - Home Buying Questions - Buying Legal & Closing FAQ's

Escrow is the process by which money and/or documents are held by a disinterested third person until satisfaction of the terms and conditions of the escrow instructions (as prepared by the parties to the escrow) has been achieved.  Once these terms have been satisfied, delivery and transfer of the escrowed funds and documents takes place.  Although in some states a real estate broker is authorized to handle escrow functions, the common practice is to employ the services of a licenses escrow company, title company or lending institution. 


In closing a real estate transaction, the escrow holder may perform such duties as paying liens, computing prorations, ordering title evidence, having new documents prepared, drawing up closing statements, obtaining necessary signatures, recording documents and receiving and disbursing funds.  After payment of their respective closing costs, the buyer is thus assured of receiving a clear title and the seller is assured of receiving the appropriate funds.  Typically, escrow fees are split equally between buyer and seller. 

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