Escrow for the Seller

To be "held in escrow” sounds ominous, as if someone or something is trapped in an inescapable enclosure. But actually being held in escrow is more like being held in protective custody.

Remember your buyer’s earnest money? Immediately after you accepted her offer, the earnest money check was given to your agent, the buyer’s agent, or an attorney — depending on local custom and regulation — to be held in escrow, that is, in a state of protective custody by an impartial third party.

Any of us could place something in escrow. Say we owned an original Picasso and put it up for sale. A buyer writes up a $10 million offer accompanied by a $500,000 deposit check.

The buyer wouldn’t want us to deposit the check in our own personal account until he could have the painting authenticated. And we wouldn’t want him to take ownership of the painting until we had the balance due — and not in the form of a personal check.

So we might agree to hire an escrow agent to hold the deposit check, verify all the paperwork, and see that the proper amounts of money — in a guaranteed form — get deposited to our account.

Escrow is a word many of us learn for the first time when we buy or sell a home. But it is a confusing word because it also can mean the state of being in escrow, the escrow agent (the person or company), and "the escrow” process — the weeks-long period of closing that lasts until ownership is transferred to the buyer.

And then there is the "closing of escrow,” which takes place only after the essential documents are recorded at the appropriate county office and all the money that’s changing hands is distributed.

Who Chooses the Escrow Agent?

In some parts of the country, the seller’s listing agreement says that the seller will choose the title and escrow companies. But when a buyer writes up an offer, it may include language saying the buyer wants to choose the escrow company. Local practices may play a role. In some parts of the country, the closing attorney handles escrow. In the West, where it is more common for an escrow agent or title company to handle closing, either the buyer’s agent or seller’s agent often is the person who opens the escrow. A typical scenario is that the seller picks the title company and the buyer the escrow agent.

Seller’s Tip: Who handles escrow is negotiable as part of the offer. Either seller or buyer can be responsible, as long as both parties agree in writing.

Fees for Escrow

The escrow, or closing, agent charges a flat rate depending on your sales price, and although fees vary, practically speaking neither seller nor buyer usually invest much time in comparison shopping. Typically, they follow their agent’s recommendation on which company to use.

The fees may be paid by the seller, the buyer, or they may be split, according to local practice or the deal negotiated.

How is Escrow Opened?

Whoever takes responsibility for opening escrow will take the earnest money check, a copy of the signed purchase and sales agreement, and the names and addresses of all parties involved in the transaction to the closing agent who opens the account.

From now on the closing agent is the gatekeeper for all the documents everyone will provide to reach the closing date specified in the sales contract.