What is Escrow?

What is Escrow?

Escrow is a term a lot of people throw around. But do you know what it means or what goes into it? Don’t worry: it’s not like a sausage factory. Escrow is a normal part when you buy a home in Long Beach and is designed to protect you. Let’s delve into this topic of what is escrow.

What is Escrow

Escrow is an actual business entity. Their whole purpose is to be a neutral third party to both the buyer and the seller. Escrow agencies themselves are managed by the California Department of Business Oversight. In this market, most purchase agreements allow the seller to choose their own escrow company.

All of the money is handled through escrow. For instance, for the buyer, you will deposit your good faith deposit with escrow. They will confirm receipt and then notify both the buyer’s agent and the seller’s agent that your funds were received. This allows the escrow period to go forward.

What happens to your money? Believe it or nuts, escrow doesn’t throw all the money into a giant pot and live off the interest. They are not allowed to. The money is placed into a trust which does not have any interest rate whatsoever. That is still “your money” and they are not allowed to make money off of “your money”. Escrow makes money by charging a fee. The fee is often times based on the purchase price and is usually split 50/50 between the buyer and the seller. When putting an offer down on a house, the seller chooses the escrow company.

During the escrow period, the escrow officer will communicate directly with the buyer or the buyer’s agent. The same with the seller or the seller’s agent. There is paperwork that needs to be reviewed, signed and in some cases notarized.

If escrow falls through, both the buyer and the seller will need to sign a Cancellation of Contract. When that has happened, it is then delivered to escrow and only then will the escrow officer release the funds to the appropriate party. Depending on where you are in the purchase cycle will determine which party gets the funds. That’s another article for another time.

What happens if there is a dispute?

Escrow will not release the funds unless both parties agree. The seller cannot be “sneaky Pete” and write escrow, claiming that the money is his. Escrow will seek to confirm this with the buyer. If no agreement is reached then Escrow will refer this matter to the court system. In Long Beach, the purchase agreements are written such that any dispute between the parties is handled by arbitration. Arbitration usually consists of both parties and an impartial judge. Both parties present their case. It would be your chance to be Harvey Specter! The judge then rules, based on the cases presented as well as the law. Then escrow will release the funds.

How long does Escrow last?

You’re correct. A typical escrow lasts 30 days. In the Long Beach market, escrows can last 30 to 60 days. They can be flexible (45 days or less) or they can be rigid (July 15th). It is a time frame established and agreed upon by both parties.

The final exchange happens when the lender wires or transfers the loan amount to escrow. Again, that money is held in a trust. Once escrow has ensured that all the requirements of the purchase contract has been fulfilled, it will release the funds to the seller and give the keys to the buyers. The exchange has been made.


So what is escrow?  A neutral third party who represents the interests of the buyer and the seller.  Escrow exists so that both parties get what they want. Buyers get the house while the sellers get the money. In Long Beach, the can be a large chunk of money being exchanged and it’s always better to have cooler heads handle this.

By | 2016-05-27T00:27:04+00:00 May 26th, 2016|Home Buyer|0 Comments

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