What is Escrow in Simple Terms?


What is Escrow in Simple Terms?

Escrow is a legal agreement between two parties in which a large sum of money is held and protected by a neutral third party until the terms of an agreement are met. In a real estate transaction, the process might look like this:

  • The Smith family is selling their home.
  • The Williams family is purchasing that home.
  • Both the Smith family and the Williams family agree to have a title company hold earnest money from the buyer (the Williams family) to safeguard the transaction and show that they are serious about buying the home. This earnest money (good faith deposit) is typically 1% to 5% of the purchase price of the home.

The earnest money will stay in this neutral account and be managed by the title company until the closing process is completely finished. This means that all title searches, home inspections, negotiations, paperwork, etc., are complete – a process that could take 30 days or longer. When all conditions are satisfactory and the deal is finalized, the earnest money that has been sitting in escrow can be used for the down payment on the home.

If the Williams family backs out of the purchase or there is some other reason why the deal does not become finalized (due to the fault of the buyer), the seller (the Smith family in this case) will get to keep the escrow money.

Escrow does not have to be managed by a title company. You can hire an escrow company, mortgage service company, bank or another financial institution. However, title companies that offer escrow services are convenient – especially if they are handling other processes on your behalf: title searches, title insurance, loan closings, 1031 exchanges, etc. It’s a way to keep the entire process under one roof and ensure a smooth transfer of funds when it is certain that all stipulations have been met.

Clear Title is a title company in Northwest Florida that offers both title services AND escrow services. Even if you do not use Clear Title as your closing company, you can still use their escrow services individually. With 100s of years of combined experience, the team at Clear Title can help make the escrow process as smooth as possible.

To schedule a meeting with our experts and explore our Pensacola escrow services, contact us today at (850) 202-8518 or visit ClearTitlenwfl.com.

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