What is Escrow?
This question is one that if you are a real estate professional, you think; “That is a very simple question.” If you are not a real estate professional however, fear not you are not alone. This is a VERY common question around first time home buyers especially and even some second time home buyers. The Term "Escrow" commonly pops up in phrases you will hear your agent say including: “the contract is moving into escrow,” “the house got put into escrow,” ect.
These can be daunting phrases to some and can become a moment of reality where the buyer or seller may realize the weight of the transaction. There is something innately within us as humans that makes us anxious whenever we think about an unknown institution coming into our transaction.
But, is there something to fear with escrow?
ABSOLUTELY NOT, that is the opposite reason that escrow is brought in!
Primarily, one of the most important things to understand about escrow is that escrow is not a place or thing, rather it is a process. Escrow, put simply, is a third party institution with zero interest in the property at stake, who has been put in place to hold onto the finances within the transaction of real estate and the given property. This organization will then disperse and delegate out the finances how they have been instructed via the purchase contract for that particular property.
A story to help better explain this in practical terms:
When I was a child, my cousins and I would help my grandmother bake. We would make cookies, breads, cakes, you name it. We were a true homestyle Little Debbie outfit. When we would bake, all of us kids would gather our ingredients into the bowl: the flour, eggs, brown sugar, butter, ect. In this scenario we, the kids, were just like the buyers or sellers in a real estate transaction, bringing what we had to bring to the offer. The ingredients were called upon by the recipe, and I want you to think of the recipe as the purchase contract for property. Grandma would then take the bowl, check that every thing on the recipe list was present and then follow the baking instructions that were laid out in the recipe. After the goodies were baked, she would take the treats out of the oven and dispurse the baked goodness. (She would even pack some to go for our parents if the work we had done in helping prepare the treats deemed that was appropriate.)
Grandma acted a lot like escrow in that instance, she was incharge of analyzing, checking, and then proceeding to distribute what the kids had started and put together from the recipe.
To conclude, don’t be afraid of escrow or the potential anxieties these words can bring as a buyer or seller. Remember as well, that you can and should ALWAYS ask your real estate professional who is tasked with guiding you, to help explain the steps you are going through with your property.