Understanding the Escrow Process

Before attending real estate school, I had a basic knowledge of the meaning of escrow. My husband and I had already bought and sold four houses before becoming licensed real estate agents, and we were familiar with the general meaning.

Escrow is actually a process. And sometimes you hear the term used in non-real estate transactions, such as big ticket items sold on eBay. When the auctioned item is valuable, buyers and sellers start talking about escrow accounts. But, what is escrow and how does it relate to a real estate transaction?

The process of escrow involves a third, neutral party, who in essence holds the funds and oversees the transaction during the change of ownership. In a real estate transaction, the escrow and title company may be the same, yet it is not always the case. The escrow officer's authority during the transaction is directed by the terms of the contract, signed by the buyer and seller.

In a traditional escrow in Arizona (practices and laws can vary from state to state), an escrow officer, which is an employee of the company, oversees the escrow. When money or documents are deposited with the officer, an escrow is opened and a number is assigned. This allows both buyer and seller to easy check the progress by referencing the escrow number.

Some of the tasks the escrow officer performs includes receiving and depositing the earnest deposit with the escrow company's trust account, and ordering information on any outstanding debts or liens. The escrow officer will also calculate and prorate any taxes, rents or insurance on the property and make arrangements for title insurance.

The escrow officer will request and receive funds from the buyer's lender, and make arrangements to pay off any of the seller's debts on the property with the proceeds. The officer will arrange for the conveyance documents, and recording of the transfer, after all the funds have been received from the buyer. The escrow officer will prepare a closing statement, showing how the funds were distributed, which is then given to the buyer and seller. The escrow officer follows the instructions in the contract. If the escrow fails to close, the escrow company normally does not receive payment.

An experienced and responsible escrow officer can influence the successful and satisfactory close of a transaction. Real estate agents will often have favorite escrow officers, knowing that that particular escrow professional will take special care of their clients. When buyers or sellers have a question about the status of their escrows, their escrow officer is one of the professionals they should be able to contact.