How Escrow Works
A Secure, Structured Process from Opening to Closing
Escrow provides a structured process for holding and transferring funds and documents while the conditions of a transaction are completed.
Why Is Escrow Used?
Escrow is a process in which funds, documents, or other assets are held by a neutral third party while the conditions of a transaction are fulfilled.
The escrow process is designed to provide structure and security during a transaction. Rather than funds or documents moving directly between the parties before the agreed conditions are satisfied, they are handled according to the applicable escrow instructions and transaction requirements.
Once the required conditions have been satisfied, the escrow agent follows the authorized instructions for completing the transaction and disbursing the funds or documents.
Escrow helps provide a controlled process for transactions involving significant funds, documents, property, or other assets. It helps establish clear procedures for receiving, holding, reviewing, and releasing transaction items according to the terms and instructions governing the escrow.
What Is Escrow?
The Escrow Process
From the opening of escrow through completion, each transaction follows a structured process.
Step 1: OPEN ESCROW
Establishing the Transaction
Escrow begins when the parties provide the information, agreements, and documentation necessary to establish the transaction.
The escrow agent reviews the information provided and establishes the escrow according to the applicable instructions and requirements.
What happens:
Transaction information is provided
Applicable agreements and instructions are received
Required parties and contacts are identified
Escrow requirements are established
Step 2: DEPOSIT FUNDS & DOCUMENTS
Securing the Transaction Items
The parties provide the funds and documents required under the transaction instructions.
Funds and documents are received and handled according to the applicable escrow procedures and instructions.
What happens:
Required funds are deposited
Transaction documents are received
Documentation is maintained as required
The escrow remains subject to the applicable instructions and conditions
Step 3: COORDINATE THE TRANSACTION
Managing the Transaction Requirements
Escrow often involves multiple parties, documents, deadlines, and transaction requirements. The escrow agent coordinates with the appropriate parties as the transaction progresses.
What happens:
Transaction requirements are tracked
Information is communicated among the appropriate parties
Outstanding documents or requirements are addressed
Changes or additional instructions are handled as applicable
Step 4: REVIEW & AUTHORIZE
Preparing for Completion
Before the transaction can be completed, the applicable documentation, conditions, and instructions are reviewed.
The escrow agent proceeds when the requirements necessary for completion have been satisfied and the appropriate authorization has been received.
What happens:
Required documents are reviewed
Applicable conditions are confirmed
Final instructions are received
Authorization to complete the transaction is established
Step 5: CLOSE
Completing the Transaction
Once the applicable conditions have been satisfied and the escrow agent is authorized to proceed, the transaction moves to closing.
Funds and documents are then disbursed or delivered according to the authorized escrow instructions.
What happens:
Final requirements are confirmed
Funds are disbursed as instructed
Documents are released or delivered as authorized
Escrow is concluded
Buyer
The party acquiring the property, asset, or interest involved in the transaction.
Seller
The party transferring the property, asset, or interest involved in the transaction.
Escrow Agent
The neutral party responsible for handling the escrow according to the applicable instructions, agreements, and transaction requirements.
Other Professionals
Depending on the transaction, attorneys, real estate professionals, lenders, title professionals, brokers, and other parties may participate in the escrow process.
WHO IS INVOLVED?
An escrow transaction may involve several parties, each with a different role in bringing the transaction to completion.