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What Is Escrow?

Escrow is another one of those complicated real estate terms that you’re not really sure what it is or what it means until you actually have to use it. If you’re a first time home buyer, you may have absolutely zero clue what the heck an “escrow” is at all. Escrow is a sort of liminal space in the home buying process, where deals and transactions are frozen in time while you sort everything out. Zillow defines it as: “when an impartial third party holds on to something of value during a transaction.” You may be thinking ‘Okay, well, it still sounds complicated.’ And don’t worry, it is complicated. That’s why we’ve written this article all about escrow: what it is, how it works, why it’s needed, and how long the process takes. Let’s jump right into it!

Escrow in detail

First, it should probably be noted that regarding mortgages, “escrow” and “escrow accounts” are two separate concepts. Escrow is the process in which a neutral third party mediates the transactions in a real estate deal, keeping money and property “in escrow” while the two parties negotiate. Then, once both sides come to an agreement and the conditions are met for the sale to close, the funds are released and allocated to their respective rightful owners. 

An escrow account on the other hand, is an account that helps manage a mortgage borrower’s annual tax and insurance costs. Homeowners will typically pay money into this escrow account on a monthly basis, and then the lender can automatically pull the required funds for associated real estate fees so that the homeowner doesn’t have to worry about it. An escrow account is usually automatically created by the bank or direct mortgage lender that you secure your mortgage from. By having this account in place, it reduces the risk of the homeowner falling behind on payments to the government or insurance provider, so it’s a kind of safety net in that sense. 

Though escrow and escrow accounts have different definitions, both of these have one consistent element in common: escrow is a way to store funds for safekeeping until they are needed to serve their intended purpose, whatever that may be. 

How do escrow accounts work?

escrow in closing

As we mentioned earlier, an escrow account is established when you obtain a mortgage loan from a bank or direct lender for the purpose of helping you keep up to date with your property taxes and homeowner’s insurance premiums. Because these fees are owed on an annual basis, it can be easy to forget about what you will inevitably owe by the end of the year. This is why an escrow account is helpful, because you have an established amount to be paid monthly into the account to accumulate, that will cover all of those annual costs so that you aren’t taken by surprise.

Downsides of escrow accounts

Escrow accounts are in place to keep you on track as a homeowner and to ensure that the bank or lender is protected as much as possible when it comes to annual fees. There is a mutual benefit to these accounts, which takes a lot of pressure off of everyone involved. However, unfortunately this setup does not come without drawbacks. One of these is that lenders typically require you to maintain a minimum balance in your escrow account to protect against unexpected increases in cost. This evens out to be around two months of expenses on your mortgage escrow account. Although, depending on how “risky” your mortgage is considered to be, the limit could be even higher. Lenders will review your account once a year to ensure that the calculated payments are aligned with the costs.

Buying a home and escrow 

Now we’ll talk more about escrow in regards to property transactions and transfers. When buying a home, the process begins when you make an offer. When you make an offer on a home, you will write an earnest money check that will go straight into escrow. Again, this means it’s not going straight to the seller, but rather it is being held by the impartial third party until negotiations wrap up and you’re able to finalize the contract and close the deal. This way, the seller can see that you have the money for the home, and that it will be ready to be handed over if they accept the offer. This also proves that you are serious as a buyer and have the cash to back it up. 

Neither party can access the money while it is in escrow. This protects the prospective buyer and the seller, because if the offer money was sent to the seller right away and you were unable to come to an agreement on terms of sale, the seller could hold the money hostage to get a leg up in negotiations. And on the other hand, a seller wouldn’t want to accept your offer without knowing for sure that you could pay for it. And there’d be no way they’d want to sign over the deed to the home until you’ve written up and sent the check. Escrow ensures that every party involved gets what they need, when they need it. This makes for a smooth, easy closing on the home. 

When the purchase of the home is completed, this will lead to a closing of escrow. This closing is essentially the final step in the closing process when the purchase is completed. When this occurs, a closing or “escrow officer” (often times an attorney) will oversee the final paperwork and allocate the funds to their respective deserving parties. They are also in charge of recording of deeds. They will make sure that all of the money is disbursed properly, that all necessary documents are signed and recorded, and that all the closing conditions are met before officially closing the escrow.

Escrow fees

When going through the home buying process, paying escrow fees will be part of the deal. Typically, these services for a home purchase will run you anywhere from 1–2% of the final price. Considering the national median home value is around $226,800, this could be $2,000 to $4,000, which will be tied in with your other closing costs. But there’s some good news: the fees are totally negotiable. You can ask the other party to cover part or possible all of the escrow fees, which they may be inclined to do in order to close the deal quicker. 

If you are purchasing the house, you will need to deposit 1–3% of the final sale price into a joint escrow account with the seller. This is that “earnest money” check we mentioned earlier in the article. This also serves another purpose: it obligates the seller to remove the listing from the market while the transaction gets finalized. This means that no one else can swoop in and make a better offer while you’re in negotiations with the seller. This earnest money will be applied towards your down payment on the house, so it doesn’t really count as an additional fee, but you should be aware that it is possible to forfeit that money if you cannot come to a final agreement with the seller. 

How long does the escrow process last?

Your average escrow is a period of 30 days. This is usually enough time for the title company to run the title report in search of any liens, easements, lawsuits, etc. Otherwise, how quickly the escrow process moves is all dependent on the buyer. First to be considered is the loan contingency, which automatically adds 17 days for the loan to go through the underwriting and approval process. 

The next factor is appraisal. If the professional appraiser ordered by the bank finds that there is a difference between the appraisal amount and the purchase price, the buyer must either back out of the sale or be required to pay the difference in cash. 

Finally, a buyer might need an extension to complete, review, and sign off on any inspection findings. This may extend the escrow period in order for the buyer to gather additional information on the property. 

So in conclusion, an escrow period can last anywhere from a week (which is fairly quick) to a month, and potentially beyond depending on how much time the buyer can reasonably extend it. As a seller, odds are you want the shortest possible escrow period, so make sure that you are quick and efficient at providing any and all information that the buyer will need in order to finalize the deal. 

Closing Thoughts

Hopefully you’ve learned a lot from our crash course in escrow accounts and real estate escrow. The more you knowledge you possess about the process of home buying and selling, the easier it will be for you to negotiate in the future. 

Ricki Irwin
Ricki Irwin
00:06 24 May 19
This was so easy Casey was very helpful and kept in contact through the entire process thank you again for everything. Highly recommend this company.
Lela Leedham
Lela Leedham
03:08 22 Feb 19
Great experience working with Casey and Ryan. We would recommend them anytime. They are very knowledgeable and very professional.
Emily Binder
Emily Binder
21:16 18 Feb 19
Jennifer Gibbs
Jennifer Gibbs
19:58 18 Feb 19
A very impressive operation. Very professional and knowledgeable. They follow up when they say they will. Very helpful Team. If you're looking for a fast and fair cash offer on your home, these are the guys to call!
Mario Elizondo
Mario Elizondo
19:58 18 Feb 19
Very professional and a pleasure to work with.
Danny O'Bannon
Danny O'Bannon
19:53 18 Feb 19
I called 5 different companies from google trying to find a company that would pay the most for my rental and their offer was higher than the others. Extremely streamlined process. Easiest transaction I’ve done
Ross Greene
Ross Greene
18:04 17 Feb 19
Ryan & Casey were great to work with! Absolute pro's in the business. I would definitely recommend them. If only I could give them more than 5 stars. Hope to work with them again soon! Thanks guys!
Pam Dickerson
Pam Dickerson
23:53 15 Feb 19
Excellent customer service! Helped us through the entire process. Highly recommend!
steve Balsacker
steve Balsacker
19:35 14 Feb 19
Me and my wife had gone through a divorce and we wanted a quick way to get rid of our property so we could just move on with our lives, Thankfully Ryan came in and helped us out, I didn't have the time to deal with the headache of people coming in and out as well as all the repairs that were needed. He gave me top dollar for my home and I was out in 7 days!
jason almeida
jason almeida
16:52 14 Feb 19
We have seen their signs around town and thought it was a scam, we decided to give them a call and I couldn't have been happier with our experience. They were professional and knowledgable, they paid for all closing costs and even helped with our family move. Great guys and great company! Thanks again!
Peter Floratos
Peter Floratos
04:51 14 Feb 19
This team handles their business right. They are a pleasure to work with.
Tyler Hubbs
Tyler Hubbs
04:38 14 Feb 19
Ryan and Casey treated me with patience and respect during the whole transaction! Very trustworthy and explained each and every question I had!! I would highly recommend We Buy Any Vegas House!!
Dennis Ripley
Dennis Ripley
03:55 14 Feb 19
Very professional and very knowledgeable from start to finish. They went above and beyond to help me find what I was looking for. I would definitely recommend them.
Avraham Metal
Avraham Metal
01:58 14 Feb 19
As a Real Estate Agent I have sold properties to Casey and his Team. They are men of their word and have never let me down.
Dena Shapiro
Dena Shapiro
01:29 14 Feb 19
What an AWESOME experience!! Casey and Ryan are THE BOMB!! They either answer their phone ALWAYS or respond within minutes. They originally called to see if I wanted to sell but I wasn't interested in selling. However, my neighbor had to sell immediately so I referred them to her, she accepted their offer & they closed escrow within weeks. It would've been A LOT sooner but there were delaying issues on the seller side. Anyways, they got it closed & EVERYONE is happy!! Thank you so much Casey & Ryan :). YOU'RE THE BEST!!!
Ron Lorenzo Woods
Ron Lorenzo Woods
00:51 14 Feb 19
Great team with quick and professional service!
karina giraldo
karina giraldo
00:36 14 Feb 19
Knowledgeable, fair, and professional. I loved working with Casey. I did my research before selecting a company, and I’m so happy I went with them!
Cody Raynoha
Cody Raynoha
00:27 14 Feb 19
Casey runs a great company that's honest, easy to deal with, and is always fair. I'd absolutely work with him again!
Whitney Carter
Whitney Carter
21:42 08 Feb 19
Grateful to have worked with such a great company! Long story, short they really did help me through a tough time. No need to get into details, but this company really knows what they are doing. Thank you for all of your help with my home. Highly HIGHLY recommend!
Alan Giblin
Alan Giblin
23:01 07 Feb 19
I was shocked when I heard that We Buy Any Vegas House could sell my house so fast without any fees or charges at all. Thanks again guys!
Crosbey Proffitt
Crosbey Proffitt
22:48 07 Feb 19
I started off using a realtor thinking that I would be able to sell my home fast, but that wasn’t the case. I ended up reaching out to different companies and I ended up finding We Buy Any Vegas House. They were on it the second I reached out to them and were able to sell my home fast!
Investors
Investors
18:59 07 Feb 19
I have been in Real Estate for many years, it’s so refreshing to meet such professional, kind people to work with. We Buy Any Vegas House has great employees who are responsive and get things done quick. You can tell they have a true passion for what they do. If you are looking to work with a great team and you want to sell your house quick, I highly recommend this group!
Scott Henry
Scott Henry
18:53 07 Feb 19
We Buy Any Vegas House truly is one of the most reliable companies I have worked with. You can really tell that Casey and Ryan really care about what they do and really want to make you feel comfortable in the process. Thank you for all your guys help!
Ashlyn Mazur
Ashlyn Mazur
21:26 02 Nov 18
Most professional real estate company I've ever worked with! Would for sure recommend them!
Ashley Thompson
Ashley Thompson
18:59 02 Nov 18
I called 3 different companies and Casey was the most responsive. His offer was higher than the other ones as well. I really liked that they were a local company and everyone who helped me in the process was great to work with!
Katrine Baker
Katrine Baker
18:39 02 Nov 18
My mom and I had to move out of our house pretty quickly due to her martial differences. They were honest and extremely professional during the process and we are forever grateful to have worked with such a great company! Highly recommend!
Gregory Mitchell
Gregory Mitchell
00:26 01 Nov 18
Unfortunately, I never thought I would see myself having to get rid of my home, especially in a fast time frame. However, life happens, and I needed to sell my home quickly due to a death in the family. I reached out to 4 companies in Las Vegas, and We Buy Any Vegas House not only was the most efficient, but the friendliest, most reasonable, and compassionate. The other 3 companies did not even compare. Casey and Ryan have gone above and beyond to make sure that this worked for me. They truly care about you, which means a lot especially during a tough time. They put in the effort to care about the client first, as well as my family during this tough time. I am so grateful to have found them, and to top it off, they bought my house and put cash in my pocket in 7 days. Would recommend to all! Use this company, you can't go wrong! Thanks to Casey, Ryan and John!
Samantha Bonneville
Samantha Bonneville
00:23 01 Nov 18
We buy any houses is one of the most honest companies I have worked with. They are always upfront with issues of the houses, honest with fees And closings. We have not had a bad experience after 10+ Transactions
Alyssa Trent
Alyssa Trent
23:08 31 Oct 18
I worked with them to help my Mom sell her house and they were so amazing!! They explained to us exactly how everything worked step by step. I called them on a Monday and they got us cash by Thursday. Casey is such a genuine person.
Robert Johnson
Robert Johnson
22:10 31 Oct 18
After a tenant trashed my rental property, I was faced with the decision of remodeling or selling the property in its current state. I called Casey and he walked me through the entire process, start to finish. After factoring in the amount of time and money the remodel would take, it was clear that selling to them was the best decision for me. Within a week of my first contact with Casey and his team, we closed on the property and I had cash in hand. I'll definitely be reaching out to them in the future. THANKS!!!
Corey Trent
Corey Trent
02:33 31 Oct 18
I reached out to Casey and Ryan when I needed to sell my house. They were very professional and helped me through this tough time. They were able to buy my house and close fast. What a great team they are! I would recommend them to anyone. Thanks again!
John Washington
John Washington
02:24 31 Oct 18
As a very skeptical person I always believe that my best interest is not priority when dealing with people that want my business. I cannot name the countless times that I have been burned. After looking to sell my house for a cash offer, I was called by a lot of investors, most of which had very little customer service. Several didn't return call when they said they would and then when they finally called me back, they got anger when I decided not to use their Services. From day one Ryan not only treated me like is #1 customer but also treated my whole family like long time friends. I most also state that his offer wasn't even the highest. I took the lower off with him due to the fact that he help with crucial tax situations that I needed taken care before receiving them money so it wouldn't bit me in the butt later. He answered every call before and after the process was completed. 99% of others wouldn't have even answered a text once they got the money. Could I have made a couple of thousand dollars more with someone else? Sure, but the peace of mind in knowing that it was done the right way by someone who actually was professional and care was more than worth it. Ryan has made a customer and friend for life.
Green Girl
Green Girl
00:00 31 Oct 18
I was in a really tough spot because my Husband was in the Hospital and had passed away. I was completely unready for this and had discovered that there would be considerable expenses!  I had received several letters from companies interested in the property on an "as is" basis.  Most had never got back to me after I called them or were too low of offers.  I put an inquiry in their website and was immediately contacted by the Owner who was able to come the very next day!  The entire process was easy and professional.  Thank you We Buy Any Vegas House!
Mike
Mike
23:37 30 Oct 18
Casey and Ryan were so helpful! I was was a week from being Foreclosed and they were able to get me cash in my account in 5 days! And even let me rent back until I was able to find a new home!
Karl Workman
Karl Workman
21:03 30 Oct 18
This company was not only the most professional real estate company i've dealt with, but they're the most reliable and respond quicker than most companies i've ever dealt with. They were fast, professional, and knowledgable in all aspects of our deal. Would and plan to recommend them to all of my friends and family! 10/10.
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