Escrow

Escrow is the arrangement where a neutral third party, usually a title company or escrow company, holds money and documents during a real estate transaction. This protects both buyer and seller by ensuring that neither side gets what they want until everyone has done what they're supposed to do.

Earnest money goes into escrow as soon as the purchase contract is signed. Funds for the purchase sit in escrow right before closing. The deed and other documents are held in escrow until the transaction is complete and funds are transferred.

"In escrow" just means the property is under contract and the transaction is actively moving toward closing.

Escrow protects everyone in the transaction. The buyer knows their earnest money isn't going directly to the seller (and can potentially be returned if the deal falls through under valid contingencies). The seller knows the purchase funds are secured and will be released when the deal closes.

Escrow also ensures that all required documents are properly signed, recorded, and delivered before money changes hands, creating a clean, transparent transaction.

A buyer submits $5,000 in earnest money when their offer is accepted. This money goes into an escrow account held by the title company. At closing, those funds are applied toward the buyer's costs, the deed is recorded, and the seller receives the sale proceeds from escrow. The title company has managed all the money and documents in between.

"Escrow is only about earnest money."

Escrow is used throughout the transaction: for earnest money, for the final purchase funds, and for the transfer of the deed. Additionally, many mortgage lenders set up an ongoing escrow account after closing to collect monthly contributions toward property taxes and homeowners insurance, disbursing those payments on the homeowner's behalf. Both uses of the word "escrow" relate to third-party fund management.