In Escrow

In Escrow: What It Means and How It Works

“In escrow” describes a contractual arrangement in which money, property, or other assets are held by a neutral third party until specified conditions are met for transfer between a buyer and a seller. Escrow provides security and ensures that each party’s obligations are satisfied before a transaction is completed.

Key takeaways

• Escrow is a temporary holding arrangement managed by a third-party escrow agent or trustee.
• It’s most common in real estate but can apply to cash, securities, collectibles, and other valuable assets.
• Funds or property remain in escrow until the contract’s conditions—inspections, clear title, financing, etc.—are fulfilled.
• Typical real estate escrow periods are often 30–60 days but can vary.

How escrow works

An escrow agreement specifies the conditions and responsibilities of all parties and names the escrow agent who manages the assets. The escrow agent (often an attorney, title company, or escrow firm) holds the funds or documents and releases them only after the contractual obligations are met.

Steps in a typical escrow process:
* Parties sign a purchase agreement that defines escrow conditions.
* Buyer deposits funds or documents with the escrow agent.
* Required steps (inspections, appraisals, financing approvals, title search) are completed.
* Once conditions are satisfied, the escrow agent transfers funds and title to finalize the transaction.

Escrow in real estate

In real estate, escrow commonly holds the property, purchase funds, and title until closing. While a property is in escrow, the buyer does not take possession. Escrow also applies to mortgage-related escrow accounts, which lenders use to collect and hold funds for recurring items such as property taxes and homeowners insurance for the life of the loan.

Common reasons assets are held in escrow

Assets may be placed in escrow to allow time to verify conditions or to protect parties from risk. Typical conditions include:

• Appraisal — Lender funding often depends on an appraisal that supports the purchase price. If the appraisal is lower than the agreed price, the buyer and seller must resolve the gap or the transaction may be canceled.
• Home inspection — Funds remain in escrow until inspection contingencies and any agreed repairs or credits are addressed.
• Financing and insurance — Completion can be contingent on the buyer obtaining a mortgage and required insurance. Failure to secure these can void the sale.
• Title search — Escrow stays in place while public records are checked for liens or other title defects. A clear title is usually required to close.
• Zoning and permits — Buyers seeking a particular use may require variances or permits; escrow can remain open while those issues are resolved.
• Repairs and seller obligations — Escrow ensures agreed repairs or contract conditions are completed before funds are released.

Releasing escrow funds

Funds or property are released only when all parties (buyer, seller, and any lender) agree the escrow conditions have been satisfied. The escrow agent follows the escrow agreement’s instructions to disburse funds and transfer title, minimizing risk and ensuring compliance with the contract.

What can be put in escrow?

Typical items held in escrow include:
* Cash and earnest money deposits
* Real estate and property titles
* Stocks, bonds, and other securities
* High-value personal property (jewelry, collectibles)
* Documents or intellectual property in commercial deals

How long can escrow last?

Most residential real estate escrows last about 30–60 days to allow time for inspections, appraisals, and financing. Complex transactions, unresolved title issues, permitting, or negotiation over repairs can extend that timeline.

Frequently asked questions

Q: Why use escrow?
A: Escrow protects both buyer and seller by ensuring that money and property are only exchanged once contractual obligations are met.

Q: Who manages escrow?
A: An escrow agent or trustee—such as an attorney, title company, or specialized escrow firm—administers the escrow according to the agreement.

Q: What happens if conditions aren’t met?
A: If contingencies fail (e.g., financing is denied, title problems persist), the escrow may be canceled and funds returned or distributed according to the contract’s terms.

Bottom line

Escrow is a neutral holding process that adds security and structure to transactions by keeping assets or funds with a third party until contract conditions are satisfied. While most commonly used in real estate, escrow can be applied to many types of transactions where protecting both parties’ interests is important.