Understanding “Opening Escrow” In Real Estate

June 17, 2020, 11:07 a.m.


Imagine, you've done everything that's required of you as a buyer in a home buying process. The obvious is within reach. Deep down you feel accomplished, because any moment now you'll receive the keys to your new home - it’s only a matter of hours and minutes, you wonder. Then, you get a call from your agent saying it's time to open escrow!


Opening escrow?

Where did it come from, and what does it mean? Why haven’t you heard of it before?

Once a buyer signs a purchase agreement, his or her earnest money together with the seller's deeds are deposited into what is known as an escrow account, and is usually the responsibility of an escrow officer or agent (an attorney for this matter). 


The independent third party

This independent third party typically oversees the entire closing process, which concludes the whole buying process. The third party or escrow officer ensures that all paperwork is legally compliant and error-free. The beginning of this process is what is known as an "opened escrow" in the realms of real estate.


Today’s standards

Escrow, by today's standards, normally takes the form of an account, which has a different definition than the cliche bank accounts. The escrow is purposely created to consolidate items such as seller's deeds and earnest money or "good-faith" deposit by the buyers to protect both parties. The account is maintained or managed by the escrow officer in which, for the most part, he or she has no personal or professional ties with either the buyer or the seller.


What it’s all about

Let’s look at what escrow is all about:
1. Who opens escrow?

From a technical point of view, it's no big deal when it comes to who should open an escrow account. In fact, this responsibility depends on the standard practice of your local real estate market.

In some countries, it’s not uncommon to see a buyer's agent opening an escrow account, while the opposite is true in others.

At any rate, don't take this as a good reason not to engage an agent. No matter how you see it, the sale will not move forward until you have an opened escrow.


2. How is the escrow officer or company chosen?

This responsibility falls on both the buyer and the seller. Whoever comes first with their recommended escrow agent, then that agent will be the ideal third party consultant, from start to finish.

Yet, in the grand scheme of things, opening escrow doesn't demand much, if any, discussion with both the buyer and the seller as to who should take the onus in opening escrow, by way of recommending a third party. This is due to the fact that agents have in place one or two connections they like working with occasionally, when it comes to opening escrow.


Escrow department

As matter of fact, it would still make sense if you just ask about who will be handling escrow before anything else transpires. But there are instances where you will find that there's an escrow department which takes care of escrow, and is overseen by either a bank, a real estate agent, or a title insurance company for that matter. 

This, in itself, isn't much of an issue to whine over, yet it's worth the consideration to ensure you're getting the best value out of a quality service. Rather than signing up with an escrow department where you may end up being undervalued and overcharged


3. What’s the duration of the escrow?

Buyer’s remorse, seller’s remorse, unsigned documents, and an inconclusive sale process, all the omnipotent presence of an escrow with such confusing yet intriguing tones, combine to prolong the duration of an escrow. 

In other words, when a buyer or a seller pulls out of an agreement without a good reason, or any and all relevant documents are yet to be signed, whereby delaying the conclusion of the sale, escrow will remain open.


4. What happens once escrow is opened?

In essence, as mentioned earlier, an escrow is a time period during which an escrow agent (company, real estate agent, attorney, etc) holds items of value from both the buyer and the seller, that symbolizes a purchase agreement. 


This may entail the following:
  • The earnest money cheque 

  • Title deeds of the home,

  • The loan documents

  • Tracks all legal and financial steps during the sale, including some or all of the items below:

  • Ordering a title search, asking any question related to the search, reviewing answers, and communicating any issues to the buyer and seller and lender.

  • Ensuring your financing documentation is in place, that it is all correct, signed, and that when added to your earnest money and deposit the total covers the agreed sales price and closing costs.

  • Reviewing your file to confirm the following reports are in place:

  • Home appraisal

  • Home inspection

  • Pest & environmental inspections

  • Specialist inspections such as mold or roof

  • Sellers disclosures

  • Checking that all applicable insurances, such as title insurance are in place.

  • Confirming with both parties and the lender details of property tax and utility payment agreements.

  • Communicates with parties in the transaction to ensure due diligence is followed and nothing is missed. This contact is usually with the bank and the real estate agents and not directly with the buyer and seller.

  • Ensures correct finance is in place at closing.

  • Creates, compiles, collates, and reviews all of the documents for the sale, as needed.

  • Conducts the closing and when this is complete, files a new deed in the buyer’s name.

In retrospect, once the buyer's offer has been accepted by the seller, thus, the sales agreement signed, the escrow agent begins all escrow administrative tasks during that time frame, independently.

The convention behind escrow’s independent undertaking by a third party, is to ensure any bias towards either the buyer or seller is absent from the equation.


4. Who closes escrow?

As it is the sole responsibility of the third party to open escrow, so it is their responsibility to close it. It doesn't require any input from you or the seller to ensure the closing. And it will only come about once the escrow agent confirms that the new deed has been signed and filed under your name. Then and only then is the escrow considered closed.


5. What about buyers under home ownership schemes?

However, it's a different story for those buyers who are, for instance, under a home ownership scheme.

Following the closing of escrow, the escrow account, on the other hand, remains open. This is to allow the new homeowner to make monthly payments which includes a percentage of both property taxes and insurance fees into the account. 

At the end of the year, when the payments are due, the escrow has enough to match them. Then the coming year's monthly payments can be calculated to account for any adjustment that may emerge unexpectedly. 

At this point, the escrow account may be referred to as a “mortgage holding account”, and the keeper of this account will usually send a yearly statement of the deposits and payments made, and the current balance.


6. How much does escrow cost?

This usually varies from country to country and, by and large, depends on where you reside and the professional real estate agency you've consulted to do your bidding in a home buying process.

But it’s always worth the trouble of finding out how much exactly will escrow cost concerning your situation.

Bottom line

Once you get to escrow in a buying process, it can be either you, the seller or, to be precise, your real estate agent who must hire an independent escrow officer to manage the administrative tasks of the sale.

The escrow officer, to begin with, will be solely responsible for overseeing seller's deeds, your earnest money, and all other documents pertaining to this sale, in order to ensure that neither you nor the seller can corrupt the deal.





This article is meant for informational purposes only and is not intended to be construed as financial, or investment advice. Hausples encourages you to reach out for professional help regarding your own real estate situation.