When buying or selling a home, one of the most important parts of the process is escrow. Escrow helps ensure that all funds, documents, and contractual obligations are handled fairly, securely, and according to the purchase contract. It’s a safeguard that protects both buyers and sellers and allows the closing process to move forward smoothly.

What Is Escrow?

Escrow is a neutral holding arrangement managed by a third party — usually a settlement or escrow company. During escrow, funds such as the buyer’s earnest money deposit and loan proceeds, along with important documents like the deed, are held safely until all conditions of the contract have been met.

How the Escrow Process Works

The specifics of the escrow process can vary by state or even by local jurisdiction, but the core purpose remains the same: holding funds and documents until all conditions of the contract are satisfied. Here’s what typically happens during escrow in a real estate closing:

1. Opening escrow – Once the purchase contract is signed, the buyer’s earnest money is deposited into an escrow account held by the settlement agent.
   
2. Title search and title insurance – The title company researches the property’s history to confirm that it’s free of liens, claims, or ownership disputes. Lender’s title insurance is typically required, and buyers may also choose to purchase owner’s title insurance for protection against future or undiscovered title issues.
   
3. Coordinating with lenders and other parties – The escrow agent works with the buyer, seller, and lender to collect all required documents and payoffs, and to follow each party’s instructions for handling funds and completing the transaction.
   
4. Closing disclosure – A final breakdown of all costs (loan fees, taxes, title insurance, and other expenses) is provided so there are no surprises at the closing table. By law, the lender must deliver the closing disclosure (CD) form to the buyer at least three business days before closing.
   
5. Final closing and disbursement – On closing day, all necessary documents are signed, closing funds are received, and the property deed is officially recorded. Once the recording is complete, the escrow agent disburses the funds to the seller, pays off any liens, and finalizes the transaction.

Why Escrow Matters in Real Estate Transactions

The escrow process provides peace of mind for the key players in a real estate transaction. Here’s how it protects each party.

• Buyers – The buyer’s deposit and closing funds are held securely until the seller delivers a clear title and all contract conditions are satisfied.
• Sellers – Property ownership isn’t transferred until the buyer’s funds are verified and ready for disbursement.
  Lenders – Funds aren’t dispersed until the title company confirms the property has a clear, insurable title. This helps ensure the loan is properly secured.

Escrow’s Role in Protecting Your Transaction

Escrow provides a secure and neutral way to hold funds and documents until all conditions of the purchase contract are met. It guarantees that funds and property change hands only according to the terms agreed upon by the buyer, seller, and lender. 

To learn more about the escrow process, contact Linear Title & Escrow in Virginia Beach, VA.