What is Escrow in Real Estate?

Escrow is a neutral third-party arrangement where funds, documents, or property are held by an independent escrow agent until all conditions of a real estate transaction are satisfied. In a typical home purchase, the buyer deposits earnest money into an escrow account when the purchase agreement is signed, and the escrow agent holds these funds until closing. The escrow officer ensures that all conditions of the sale are met — including title search completion, inspection contingencies, loan approval, and document preparation — before disbursing funds and recording the deed.

Escrow serves two primary purposes in real estate: transactional escrow (managing the closing process) and impound/reserve escrow (ongoing monthly collection of property taxes and insurance premiums by the lender). For impound accounts, the lender collects a portion of annual property taxes and homeowner's insurance with each mortgage payment, then pays these bills when they come due. RESPA limits how much a lender can require in these reserve accounts.

The escrow process typically takes 30 to 60 days for a residential transaction. Escrow agents must remain neutral and cannot advocate for either party. In some states, attorneys handle the escrow function, while in others, title companies or independent escrow companies serve this role.