What is Escrow in Simple Terms?



 headshot

What is Escrow in Simple Terms?

Titles, earnest money, disclosures…there are many real estate terms that get thrown around in the process of buying or selling a home. Before you sign on the dotted line of a contract though, it’s important to understand exactly what those terms mean, and what agreeing to them entails. What is escrow in simple terms?

Once an offer is accepted and a contract is signed, a percentage of the agreed upon purchase price is placed into an escrow account by the buyer. This money serves several purposes. First, it signals to the seller that the buyer has adequate funding available to complete the purchase. Second, it puts money on the line so both the buyer and seller have more incentive to complete the terms of the contract and close on the deal. If the buyer chooses to walk away without finalizing the purchase, the seller usually gets to keep the escrow money as a consolation for lost time and the continued effort it will take to find another buyer. Third, the money serves as a placeholder for the eventual down payment that will be made upon closing.

Escrow is usually between 1-5% of the purchase price, but the number will usually be on the lower end of that range. When making an offer to purchase a property, the exact number and deadline for submitting the money will be included in the contract for the seller to agree on. The money goes into an escrow account, which is serviced by a neutral third party who has no ties to either the buyer or seller. This ensures that the money is kept out of anyone’s hands until either the purchase agreement is complete (at which point it is transferred to the seller) or until the contract is canceled (at which point it is transferred to the seller or returned to the buyer per the contract termination terms).

Escrow accounts can be managed by many different businesses; escrow companies, title companies, mortgage companies and even banks can all handle escrow accounts.

In simple terms, escrow is a prepayment from the buyer to the seller. This money is held by a third party until all the contract obligations are met, at which point the payment is made complete by transferring the funds to the seller.

Although buying and selling can feel stressful and tedious, escrow doesn’t have to be that way. By entrusting your escrow account to Clear Title, LLC, you are streamlining the escrow and title search process, saving you time, energy and emotional fatigue. The title and escrow agents at Clear Title, LLC are experts in our field, and will make sure your real estate transaction goes as smoothly as possible.

To schedule an appointment in Northwest Florida, call one of our conveniently located offices today:

Pensacola: (850) 361-4029

Pace: (850) 994-3838

Pine Forest: (850) 202-8518

Our Locations

Pace Location

4636 Summerdale Drive
Pace, Florida 32571

Pensacola Location

127 Palafox Pl Suite 200
Pensacola, Florida 32502

Pine Forest Location

2107 W 9 Mile Rd, #3
Pensacola, Florida 32534

Send Us a Message