Escrow ABCs

Escrow ABCs

Everyone has heard the term “in escrow” – but not a lot of you know what it means other than as being one of the stages of purchasing a house. Broken down to the most basic concept, placing funds in escrow means placing them with a third party that has no interest either on behalf of the seller or of the buyer. When you offer your earnest money, those funds are held in escrow by third-party while you, the seller, and your respective real estate agents negotiate the purchase contract. You give the money to your real estate agent, who conveys the funds to the third party. These funds are then placed in an escrow account.

Other monies can also be put in this account such as closing costs to be paid both by the buyer and the seller.

Once you make a deposit of your earnest money, you can’t get it back unless there are significant problems with the property that make going forward with the sale impracticable. You can also regain your earnest money if the homes appraisal is significantly lower than the purchase price and the seller will not negotiate. In both cases you must have contingency clause is in your purchase contract that allow you to do this. Earnest money is exactly that, a deposit of around 10 percent of the purchase price of the home that shows you are making an earnest offer. You do not convey the earnest money before you have a signed purchase agreement. Here’s a quick breakdown of the steps:

  • After you sign the purchase agreement with your seller, your agent takes the earnest money and deposits it in an escrow account.
  • The mortgage lender will do an appraisal of the property – which you pay for. This protects the bank’s financial interest in the property in case of a foreclosure. If the appraisal is significantly lower than the asking price, the lender may refuse to give the mortgage unless you come up with the money for the difference or the seller lowers their price.
  • If you are preapproved for mortgage, you can give the lender the property address and it will prepare a statement detailing your loan type, amount, interest rate, closing costs, and other expenses associated with your part of the purchase. Remember to thoroughly read this estimate before you sign it. After your financing is secured, it’s time to retract the financing contingency clause.
  • You will also need to obtain a home inspection, pest inspection, to obtain specialized inspections such as for mold, chemical hazards, and for specialized structures such as seawalls and swimming pools. Older homes may also require a four-point inspection. The seller should also present their disclosures at this time.
  • After signing off on the disclosures and assuming the home has passed the inspections, you will need to begin hunting for homeowners insurance, as well as securing windstorm and flood insurance.
  • Take a final walk-through before closing to make sure that everything is in order and undamaged.
  • Get the title report and obtain buyers title insurance. Your bank has title insurance to protect them from defects in title, and you need a policy to protect yourself and your investment as well.
  • Three days before closing obtain and review all of your closing documents.

Closing on a house can be a very stressful experience, but this rough guide should give you some idea of how to proceed. We hope that you find the home of your dreams.




Founded in 2009 during one of the slowest real estate markets in the past half century, First International Title has grown from a handful of offices to over 30 offices throughout the state, from Key West to Pensacola, including its company headquarters in Coral Springs. We provide closing services in English, Spanish, German and French. With a combined 1,000 years of experience, our staff has extensive experience closing residential, refinance, reverse mortgage, short sale, REO, deed-in-lieu and commercial transactions. We do not outsource or offshore any portion of our core title services. We employ our own searchers and examiners to ensure quick turn times and accuracy. At First International Title, we put our customers first.

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Posted in Mortgage, Real Estate
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