If you’ve ever been involved in a real estate transaction – or just watched a few episodes of a homebuying show – you’ve probably heard someone say, “We’re in escrow.” But what does that actually mean?
In real estate, “in escrow” refers to a specific phase of the homebuying process when a neutral third party temporarily holds important funds and documents while the buyer and seller work toward finalizing the sale. It’s not just a technicality – it’s one of the most important and complex parts of the transaction.
In this Redfin article, we’ll take a closer look at what being “in escrow” really means, how it works, and what to expect during this pivotal stage.
What does it mean to be in escrow?
When a home is in escrow, it means the buyer and seller have signed a purchase agreement, and an escrow account has been opened to securely hold the buyer’s earnest money deposit. At this stage, the transaction has officially entered the closing process.
The escrow account holds the deposit along with important documents like the purchase contract, loan paperwork, and the deed. A neutral third party – usually an escrow officer from a title or escrow company – manages these funds and documents to ensure all terms of the contract are met before any money or ownership changes hands.
In simple terms, if your agent says “we’re in escrow,” it means the transaction is formal and underway, with funds and paperwork safely held while both buyers and sellers complete their responsibilities, such as inspections, appraisals, and final loan approvals. Once everything is in order, the sale moves toward closing and ownership is transferred.
When does escrow start?
In most transactions, escrow officially “begins” as soon as the buyer and seller sign the purchase agreement and the buyer submits their earnest money deposit – typically 1–3% of the purchase price – to the escrow company. The escrow officer then opens a file and…