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Escrow – What Is Escrow And How Does It Work?

Escrow - What is Escrow and How Does It Work?

If you’re buying or selling a home, you’ll often hear the word “escrow”. In this blog article we look at what escrow is and how it works


An escrow is an arrangement in which a disinterested third party, called an ‘Escrow Holder’ or ‘Settlement Agent’, holds legal documents and funds on behalf of a buyer and seller and distributes them according to the buyer’s and seller’s instructions.

Watch the video below for a demonstration.


The greatest benefits of an escrow account is that both the buyer and the seller will be protected during a real estate transaction.

For buyers, an escrow account will help to protect your deposit during a home sale – whereas for sellers, it will ensure you have the money to pay for property taxes and homeowners insurance bills, helping make the payments more manageable.

Specifically, here are some of the ways in which a ‘Settlement Agent’ will help to facilitate the sale or purchase of a home:

  • Acting as the impartial “stake-holder,” or depository of documents and funds
  • Processing and coordinating the flow of documents and funds
  • Keeping all parties informed of progress on the escrow
  • Responding to the lender’s requirements
  • Securing a title insurance policy
  • Obtaining approvals of reports and documents from the parties as required
  • Prorating and adjusting insurance, taxes, rents, etc.
  • Recording the deed and loan documents
  • Maintaining security and accountability of monies owed and owing


Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money is accomplished.

The escrow ‘Settlement Agent’ will divide the charges for the services performed throughout the settlement process, as well as allocate proportionate shares of an obligation paid or due between the seller and buyer.

The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow settlement fee, any transfer taxes, recordation fees and cost in connection with any loan being obtained.

Watch the video below for a demonstration.


Copyright NATIONAL ASSOCIATION OF REALTORS®. Article reprinted with permission. All rights reserved.