May 9, 2022


Buying or selling a home is one of the most financially significant transactions you can make in your lifetime. As much as there is to gain, there is to lose. If you're in the middle of a real estate transaction, you may be in escrow (or considering it) as added insurance to protect your money. If so, there are some things you'll want to know about escrow users, its closing process, and costs to make sure you're well prepared.

Keep reading to learn more!

What Is The Escrow Process?

The escrow process is the process of transferring the ownership of property from one person to another. The property can be anything from a house or car, to an item such as an expensive watch.

Escrow is usually used for transactions involving more than one party. For example, when two people want to buy a house together, they can agree which party will open escrow, how much money they will put down, and more. This all ensures trust when it comes to the transaction.

How Does Escrow Closing Work?

In real estate, an escrow closing process occurs when the escrow company, real estate agent, and buyer come together to complete the transaction of buying property. The seller transfers the title to the buyer and receives payment from the buyer. Then, at some point in time—usually two weeks after the sale is completed—the funds are transferred into an account that will be used for taxes or other expenses.

The buyer then takes possession of the property and has a right to rescind the contract if there are any problems.

How Does Escrow Closing Work

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Roles: Who Is Involved In An Escrow Closing?

The process often involves three parties:

  • The buyer
  • The seller
  • A neutral third party, typically an escrow company or an escrow agent

While these are the standard parties involved in the escrow process, it may vary from time to time. Ask a real estate agent for more information regarding your specific situation.

What Is An Escrow Company?

Generally speaking, homebuyers and sellers often use escrow companies to ensure that both parties get their share of the transaction. Escrow companies can be helpful in any transaction where one party needs assurance that what they paid for will be received. Escrow companies provide a neutral third party to ensure that all parties are satisfied with the transaction outcome.

What Is the Role Of An Escrow Agent?

An escrow agent is an individual that holds and manages funds or assets for a short time. They are also responsible for ensuring that the terms of the agreement are fulfilled.

Escrow agents can be independent third parties or work as part of a legal team. In many cases, escrow agents are lawyers appointed by the court to oversee an estate. They also have to ensure that any disputes arising from the agreement are resolved appropriately.

The role of an escrow agent is to act as an unbiased third party who safeguards money and assets until they've been successfully exchanged between the two parties.

What Is the Role Of An Escrow Agent

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What Is the Role Of An Escrow Officer?

An escrow officer is an individual who records and manages the transfer of funds or documents for a real estate transaction. Becoming an escrow officer involves a specific process to ensure that this person is licensed and bonded. This applies to most states.

An escrow officer's responsibilities include:

  • Processing and recording all necessary paperwork.
  • Monitoring the progress of the sale to ensure that conditions are met.
  • Conducting or overseeing inspections, appraisals, or other evaluations as needed.
  • Ensuring compliance with all applicable laws, rules, regulations, and contractual provisions.

What Is The Difference Between An Escrow Officer And An Escrow Agent?

An escrow officer is responsible for the processing, administration, and closing of escrows. This person will have to take care of everything from reviewing all documents to maintaining records. 

An escrow agent, on the other hand, is an individual who assists the escrow officer in processing and closing transactions.

What Is The Role Of A Real Estate Broker?

In the escrow process involving real estate transactions, a broker is responsible for helping buyers and sellers negotiate a price for their property. They act as the liaison between the two parties.

Brokers are also responsible for managing the escrow process, which includes:

  • Collecting and distributing funds from the buyer and seller during the escrow period
  • Helping buyers find financing
  • Providing information on mortgages, home inspections and title companies
  • Preparing documents such as a Purchase Agreement (see below) that transfer ownership of a property

What Is A Purchase Agreement In A Real Estate Transaction?

A purchase agreement is a contract between the buyer and seller of a real estate property. It outlines the terms and conditions for the sale of the property. These terms include price, closing date, inspection period, and financing.

Purchase Agreement In A Real Estate Transaction

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Escrow Agent vs. Real Estate Agent

Both an escrow agent and a real estate agent have different duties and responsibilities. Escrow agents are required when buying or selling a house. They are in charge of collecting all the money from the buyer and seller, paying off the mortgage, taxes, etc. A real estate agent is licensed to buy and sell properties. They represent their clients and help negotiate on their behalf as well.

What Are The Steps In An Escrow Process?

The first step in an escrow process is identifying a qualified escrow agent. The agent will review the documentation and ensure that all requirements are met before setting up an account with a title company.

The second step is setting up an account with a title company and selecting what type of title insurance coverage you want for your property.

The third step is submitting the necessary funds into an escrow account and signing the required documents.

What Is The Process Of An Escrow Close?

The process of an escrow close starts with the escrow officer receiving funds from both parties involved in the transaction. The escrow officer then verifies that all conditions are met before releasing funds to the seller. Once this is verified, the process is completed.

How Long Does The Escrow Process Take?

Keep in mind that escrow is a large financial transaction that involves different key parties, an assortment of important documents, such as the purchase agreement, and some other moving pieces. Due to this, the time it takes to complete the escrow process can vary depending on these factors. However, generally, the entire escrow process usually takes around 10 to 14 days to complete.

How Long Does The Escrow Process Take

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What Is An Escrow Closing Cost?

Since the process of closing an escrow can be expensive, it is important to figure out your finances so you can budget ahead of time. The escrow closing cost is a fee that the escrow company charges for completing a transaction. 

It is usually a percentage of the property's purchase price, and it can be as high as 2%. Escrow closing costs are calculated based on both parties' total amount of money being transferred.

Additionally, escrow companies also charge an additional fee to complete a transaction. This fee is around 1-2% of the purchase price of a home.


Escrow will help make sure your money is protected until the transaction is complete and all terms and conditions are met, but it does involve some necessary costs.

You must be aware of all the costs involved to avoid any financial surprises throughout the process. Speak with your escrow agent, real estate agent, or real estate attorney to learn about all the potential costs while protecting your money at the same time. You will be glad you did!

About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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