A Guide To the Escrow Process

The term “escrow” can be intimidating to many home buyers. So I want to take some time to define it, explain what buyers can expect during the escrow period, and remind everybody that it’s nothing to be scared of.

After your offer on a home is accepted, an escrow is opened. The purchase agreement states the length of the escrow period, normally 30-60 days.  However, all-cash deals can close in a shorter period such as 10 days or even less.

The escrow is a neutral third party that is responsible for overseeing the details of closing on the home. The escrow officer acts upon instructions from both the buyer and seller (or borrower and lender) and is responsible for the following:

• Preparing the final closing statement
• Receiving and handling all monies, instructions and documents
• Serving as the communication link between the parties
• Ordering a preliminary title report
• Requesting a payoff demand from existing lien holders
• Handling insurance documents
• Complying with lender requirements and furnishing documents to them
• Preparing the grant deed that will convey title to the property
• Prorating taxes, interest, insurance
• Obtaining the title insurance policy
• Providing the final documents to the title company for recording the closing
• Disbursing the funds at closing, such as real estate commissions, loan payoffs, title insurance, taxes, recording fees, etc.

Once escrow is opened the buyer makes a good faith deposit, usually 3 percent of the purchase price, and a title report is ordered from the title company for the buyer to approve.

During the escrow period the buyer meets with the lender and makes an application for financing.  An appraiser is sent out to the property.  The buyer will also have an inspection period. 

Termite work and an inspection to make sure the home is in compliance with local retrofitting requirements also happen during this time. The latter includes having an earthquake shut-off valve, low flow toilets, smoke detectors in the bedrooms and hot water heaters strapped down for earthquake safety.

After all inspections are complete, the buyer needs to decide whether or not to move forward with the purchase. If everything is a go, the buyer’s loan documents are usually signed at escrow during the final weeks of the escrow period.

Just prior to closing the buyer deposits the remaining down payment.  On the day of closing, the title company goes to the County recorder’s office and stands in line to record the documents.  Escrow is notified that the documents are recorded and the real estate agent hands over the keys to your new home. 

Some buyers (and sellers) think the deal is pretty much done once they open escrow. But in my opinion it’s when the real work begins.

Things will likely come up during escrow that you didn’t anticipate. But rest assured a skilled and experienced real estate agent will work with the escrow company to handle any problems that arise.