Escrow is a term used to identify both a physical company AND a time period, depending on context. For clarity, this article will use red font to refer to the company and blue to the time period. In CA, escrow companies are standalone entities. In TX, TN, CO (and likely most others), escrow duties remain the same, but the entities themselves are consolidated under the single umbrella of “Title” or “Attorney’s Office”. **See diagram on the right for standard outline.

  • Escrow companies are neutral 3rd party process managers who facilitate the “escrow process”.

  • The escrow process is the period of time between offer acceptance and closing. Typically 30-60 days, this process is where all parties (buyers, sellers, agents, escrow, title, lenders, inspectors, etc) perform the tasks needed to close a transaction smoothly and successfully.

When an offer is accepted, the escrow company “opens” escrow. Though some escrows go without complications, the majority do not. As your advisor, my objective is to make sure clients are prepared to ebb and flow with the inevitable volatility. From the perspective of the buyer, a standard escrow can be broken into three distinct phases:

  • Due Diligence
    Time-frame: 7-21 Days
    Purpose: Buyers get to verify the condition and legal standing of the property.

    • Buyers will receive special disclosures from seller.

    • Buyers will deposit appx 3% of the purchase price into escrow to show that they’re serious.

    • Buyers will conduct various inspections.

    • Buyers will receive escrow’s instruction packet.

    • Check for legal discrepancies or outstanding claims on the home.

    • Several other activities to be certain there won’t be any surprises down the line.

  • Repairs/Loan Security
     Time-frame: 14-21 Days
     Purpose: Loan process enters phase two and any agreed upon repairs commence.

    • Secondary negotiations take place.

    • Loan underwriter asks for final docs from buyers.

    • Agreed upon repairs commence.

    • Termite commences.

    • Property appraisal takes place.

  • Closing Procedures
      Time-frame: 3-7 Days
      Purpose: Finalization, notarization, and recording of key docs, leading to the close of escrow.

    • Lender figures are balanced w/ what escrow has on their master sheet.

    • Loan docs notarized.

    • Federal disclosures submitted & returned.

    • Buyer wires remaining cash-to-close.

    • Once buyer’s funds “land”, bank wires loan amt to escrow.

    • County assessor records transfer of title. It’s now your home!

In it’s over-simplified form, escrow is all about “contingencies”. Contingencies--sometimes better understood as safeguards--are specific terms and/or conditions that must be satisfied in order to move forward with a transaction. Their purpose is to act as a fail-safe for the deposit you send to the escrow company upon the opening of the escrow. Technically speaking, you can designate anything as a contingency, but the most common ones are as follows:

  • Inspection Contingency

    • Buyer has the right to perform any inspection they want to determine whether the home is in the condition he or she thought it was upon submitting their offer. Standard procedure is a general inspection and, if necessary, followed up w/ specialized inspections on major red flags.

  • Section I Contingency

    • If the property is being purchased with a loan, most lenders will require “Section I” clearance. This means termites. Termite inspections and tenting obviously cost money, so figuring out who will pay for what is another point you’ll want to discuss with your Realtor/Agent.

  • Appraisal Contingency

    • If the property is purchased with a loan, the lender will contract their own professional (known as an Appraiser) out to the home to ensure they’re not funding an overpriced home. If the appraiser’s valuation of the property comes in below the purchase price in the offer, buyers will have the right to cancel the agreement.

  • Loan/Financing Contingency

    • If the property is being purchased with a loan and the loan fails, the buyer’s deposit is NOT on the hook in the case of a cancellation.

  • **NEW** Insurance Contingency (CA Only)

    • As of 2024, if the property is being purchased with a loan, CA contracts now have an insurance contingency as well. HOI has been getting very expensive AND increasingly difficult to secure. This new safeguard gives buyers an additional way out w/ deposit in-hand if HOI becomes too big a hurdle.

Although contingencies act as key safeguards for buyers, it should be emphasized that the goal of your escrow period is to remove them, not hold onto them. Your contingencies are there to 1) ensure the home is what you thought it was, and 2) ensure your loan will fund on-time and without difficulty.

A standard escrow process for a residential purchase using a conventional loan.