Confused About Escrow? Here's the Simple Version.

By Home Bay

Posted on April 21st, 2016

One of the most common questions we get from sellers who are listing FSBOs is, what’s the deal with escrow? Sellers often ask what’s involved, how long the process takes and what they can expect. This post will answer all those questions and more. Grab your pen and paper to take some notes, then read on to learn all about escrow!


What is escrow?

In a nutshell, escrow occurs when a neutral third party holds buyer funds and the purchase contract until an escrow agent verifies both the buyer and seller have done everything they need to do to finalize the sale.

Here’s a more detailed description of how the escrow process works:

  1. The Inspection Phase:
    After the seller accepts an offer:

    1. The buyer signs a contract and the escrow process begins.
    2. The buyer deposits “earnest money” – usually a couple thousand dollars — to hold the sale.
    3. The buyer reviews any disclosures (flaws in the property) and signs off on them.
    4. The buyer completes any inspections they like by the date designated in the contract.
    5. The inspector sends results to the buyer.
    6. The buyer asks for repairs or for a reduction in price to compensate for any issues.
    7. The seller agrees to one of the above outcomes for the sale to move forward.
  2. Securing the Mortgage:
    After the inspections are complete:

    1. The buyer’s mortgage company sends them a good faith estimate of the closing costs.
    2. An appraiser conducts a property appraisal to verify the value of the home.
    3. The buyer’s mortgage lender approves the mortgage.
  3. The Closing:
    After the buyer’s mortgage is approved:

    1. The buyer and seller attend separate meetings.
    2. The title company runs title search is run to verify that there are no issues.
    3. The buyer’s lender sends the final finance documents to the escrow agent.
    4. The buyer signs all closing papers and loan documents.
    5. The buyer pays the remaining down payment and closing costs.
    6. The escrow agent schedules the deed to be recorded at the County Recorder’s office.
    7. The escrow agent disburses all the funds.
    8. The sale is deemed closed.
    9. The buyer gets keys to their new home.

Hopefully this simplified escrow timeline made it easier to understand all the things involved in the escrow process. If you have any questions, please ask in the comments!

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Posted in Escrow