Escrow Process

You’re in Escrow, Now What?

An escrow is created when money and/or documents are deposited by two or more persons with a third party which are to be delivered upon the happening of certain conditions. The third party is known as the escrow agent or escrow holder.

The authority given to an escrow holder is strictly limited by instructions provided by the parties involved. Consequently, an escrow holder acts on mutual instructions deposited into escrow and DOES NOT represent any party. The escrow officer is authorized by instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees, and other costs. Instructions also specify the method of collecting funds, proration issues, time limitations, and all terms of the transaction. The escrow process protects all parties involved by retaining money and documents until the mutual instructions are met.

Click the Video Below to watch a presentation of the escrow process.

Here are the basic steps of the escrow process:

    1. Good Faith Deposit —  The deposit – typically 3% of the purchase price – is due within 3 days of opening escrow.  The deposit is refundable, if you properly exercise a cancellation due to an inspection or loan problem.   We’ll help you with this process, if it arises.
    2. Inspections – Unless otherwise negotiated, you typically have 7-10 days to inspect the property.  Start with a general home inspection, and let the home inspector recommend additional inspections.  Common additional inspections include sewer, chimney and foundation.
    3. Loan – The loan process runs concurrent with the entire escrow.  We handle coordinating the loan with the lender and escrow.  You’ll have to get the lender your personal financial documentation, but we’ll handle the rest.
    4. Appraisal – The lender will order the appraisal at the outset of escrow, and we’ll make sure to make sure the appraiser gets in to the property.  This money is paid up front.
    5. Retrofit – If applicable, we have a 3rd party company come to the house and insure that the property meets the minimum safety standards as dictated by the city.  The repairs are made prior to the close of escrow, and you are provided with a certification for your records.
    6. Disclosures – The seller provides you with disclosures for the property based on what they know about the property that could be a material defect that affects the value of the home.  Your agent will review the disclosures with you.  If it is a new construction or bank owned property, the seller will not provide a disclosure.
    7. HOA – If you’re buying a condo or house with an HOA (Homeowners Association), you are provided with a disclosure about the condition of the HOA, including meeting minutes, financial statements, and any other internal documents.  You are also provided with the rules and regulations governing the complex and information on your parking spot.
    8. Termite Inspection – Typically the seller arranges and pays for a 3rd party company to inspect the property for termites, and provide a clearance for you, and for the lender.  Typically the seller covers “Section 1” termite work, which is actively infested and presently damaged areas of the property.
    9. Final Walk Through – Within 5 days prior to close of escrow, the seller will allow access for you to make sure that the property is in substantially the same condition as when you made the offer.
    10. Loan Docs – A few days before the closing, you’ll get documents from the lender.     Escrow will arrange a time to sign at your convenience.  Once you sign, you are handed information on wiring the balance of the down payment and closing costs to escrow.  Typically the loan funds 1-2 business days after signing, and you record escrow the next business day by 5pm.
    11. Keys – Typically by 5pm on the day of close of escrow, you will get keys and access to the property.  If it is a bank owned property, you likely won’t get clickers, parking permits or common keys; if that is the case, we’ll help coordinate with the HOA to get these to you.


Flowchart of the Escrow Process:



What is Escrow?

An escrow is an arrangement in which a neutral third party (the escrow agent) assembles and processes all of the components of a real estate transaction (including legal documents), records the transaction, and ultimately, disburses and distributes funds according to the buyer’s and seller’s instructions. Your transaction is typically closed by an escrow officer.

People buying and selling real estate often open an escrow for their protection and convenience. Both the buyer and seller rely on the escrow agent to carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. If the instructions from all parties to an escrow are clearly drafted, the escrow officer can take many actions on behalf of the buyer and seller without further consultation. This saves much time and facilitates the closing of the transaction.

Typical roles in the Escrow process:

The Seller/Agent:

-  Delivers a fully executed Purchase & Sale Agreement to the escrow agent.

-  Executes the paperwork necessary to close the transaction.

-  Prepares any amendments to the Purchase & Sale Agreement.

The Buyer/Agent

-  Deposits funds required to close (in addition to the purchase price) with the escrow agent.

-  Approves any inspection reports, commitment for title insurance, or other items as called for by the Purchase & Sale Agreement.

-  Fulfills any other conditions specified in the Purchase & Sale Agreement

The Lender (when applicable)

- Deposits proceeds of the loan.

- Directs the escrow agent of the conditions under which the loan funds may be used.

The Escrow Agent

-  Obtains the order for title insurance.

-  Obtains approvals from the buyer(s), the commitment for title insurance, and any other inspections that are called for in the Purchase & Sale Agreement.

-  Obtains any required payoffs / release documents to clear title.

-  Receives funds from the buyer and/or lender.

-  In most cases, prepares vesting documents and excises the tax affidavit on the seller’s behalf.

-  Prorates insurance, taxes, rents, etc.

-  Prepares a final statement (commonly referred to as the “HUD Statement” or ”Settlement Statement”) for each party, indicating amounts paid in conjunction with the closing of your transaction.

-  Oversees the signing of loan documents.

-  Forwards deed to the county for recording.

In Summary

Some of the escrow officer’s responsibilities include:

-  Process and coordinate the flow of documents and funds.

-  Keep all parties informed of progress to the escrow.

-  Respond to lender’s requirements.

-  Oversee signing of loan/closing documents.

-  Prorate and adjust insurance, taxes, rents, etc.

-  Record the deed and loan documents.

-  Prepare a final statement outlining funds received and to be disbursed in conjunction with your transaction.

Escrow functions as the facilitator of all the components of a real estate transaction. The transaction is officially closed when the new deed is recorded, thus transferring ownership from the seller to the buyer. The escrow agent is a neutral third party acting on behalf of the buyer and seller under the guidelines set forth by their governing agencies.

We are experienced Sacramento Real Estate Attorneys and Sacramento Realtors. We are a unique and powerful combination and can help you buy Sacramento Real Estate homes or sell Sacramento Real Estate homes with proven results, legal advice and the strategy needed to give you the results you want. Contact us today by clicking HERE or by calling 916-378-5760. We look forward to helping you with all of your Sacramento real estate needs.