• Escrow accounts provide a neutral, secure space for holding funds and documents during real estate transactions, protecting both buyers and sellers.
  • Real estate agents don’t manage escrow directly, but should understand the process to build client trust and guide them confidently through closing.
  • The escrow process includes clear steps — from offer acceptance and contingencies to final walkthrough and disbursement on closing day. Escrow accounts may also be used post-funding to collect funds needed to cover property taxes,  insurance, and private mortgage insurance that the borrower is required to pay.
  • Earnest money and key documents are held in escrow to ensure all conditions are met before the sale is finalized, minimizing legal and financial risks.

Have you ever had a buyer ask, "Do I need to put money down upfront to secure my offer?" If you don't have a clear, confident, and concise answer, your client's trust in you may falter. For many homebuyers and sellers, real estate transactions can feel like a whirlwind of signatures, deadlines, and financial commitments.

One of the most misunderstood parts of the home buying process is making an earnest money deposit when making an offer through an escrow account. As a real estate agent, you are often your client's first point of contact for questions about every step of the homebuying process. While you're not responsible for managing the escrow account, knowing the basics of how escrow accounts work may help you build trust, manage expectations, and guide clients with confidence. This article breaks down escrow account basics and outlines what real estate agents should know, so you can best support your clients throughout the home buying process.

What Is an Escrow Account?

An escrow account is a neutral, temporary holding place for funds and documents during the sale of a property. An impartial third party, such as an escrow agent, attorney, or title company, manages the account. This third party ensures that all conditions of the sale are met before both the money and property officially change hands on closing day. The escrow process is a system of checks and balances to help protect everyone involved in the transaction and is used to secure the upfront earnest money deposit and disburse those funds to the seller at closing.

Why Escrow Accounts Matter 

Escrow accounts may offer protection for everyone in the real estate transaction. They also help keep the transaction secure, orderly, and compliant. An escrow account may protect the below parties in the following ways:

  • Buyers: Ensures their earnest money is safe and only released once conditions are met.
  • Sellers: Assures that the buyer is serious and financially committed.
  • Real estate agents: Supports an organized transaction, minimizing legal and financial risks.

Without the escrow period, buyers could face the financial risk of paying earnest money before inspections are passed, title searches are complete, and loans are approved. Sellers could also face the risk of accepting an offer that is not secured by an upfront earnest money deposit, making it more likely that a buyer could back out of the sale without any financial consequences

A Step-by-Step Escrow Timeline

Communicating the escrow process timeline and related requirements to your clients helps you set accurate expectations of the upfront home buying process. It also gives you the opportunity to get answers to any questions.

Here's the timeline of a typical escrow process:

  1. Offer acceptance: Once both parties agree on the terms of the purchase, the buyer pays the earnest money into the escrow account. This amount may be paid to a designated third party, like a real estate brokerage, escrow company, title company or law firm. It is not recommended to pay the deposit directly to the seller. Earnest money payment may be 1% to 3% of the home's purchase price.[1]
  2. Conditions and contingencies: In some scenarios, the purchase agreement outlines the contingencies that need to be completed before closing. These contingencies could include inspections, securing financing, and appraisals. The escrow holder ensures all parties meet their obligations before releasing any funds or documents.
  3. Title review and insurance: A title company, which may also be the escrow holder as well, conducts a title search to confirm legal ownership and identify any liens or encumbrances. Title insurance is issued to protect the buyer and lender against future title disputes.
  4. Final walkthrough and loan approval: As you approach the closing date, the buyer conducts a final walkthrough through the property. This is also when the lender issues final approval. At this stage, the escrow officer begins compiling closing documents and calculating settlement figures.
  5. Closing day: Once all details of the transaction are complete, such as contingencies are cleared, funds are transferred, and documents signed, the escrow holder distributes the funds to the seller, pays off any existing liens, and records the deed with the appropriate government office.

What Funds and Documents Go into Escrow?

During the transaction, several assets and materials are held in escrow. While real estate agents don't manage the escrow account directly, your clients may have questions about what's being held and why. 

An escrow account may hold:

  • Earnest money deposits
  • Signed contracts and disclosures
  • Property deeds
  • Inspection and repair agreements
  • Loan documents and lender instructions
  • Settlement statements
  • The buyer's down payment
  • Lender paid funds (needed to complete the purchase)
  • Other funds (like closing costs, paying off buyers existing mortgage, real estate agent commission, or funds needed to pay other expenses in the transaction, like property taxes and insurance)

An escrow account ensures these items aren't released too prematurely. This period also ensures the parties follow local regulations and the contract terms.

Who Manages the Escrow Account?

Depending on state-specific requirements, different professionals or firms may manage the escrow account. This could be:

  • Title companies
  • Escrow firms
  • Real estate attorneys
  • Independent escrow agents

In some states, escrow is integrated into the title process. In other states, attorneys take the lead. As an agent, it's essential to understand who typically handles escrow in your market. Understanding who handles escrow may help you recommend experienced, reputable providers when needed.

How To Talk To Your Clients About the Escrow Process

While you're not responsible for managing escrow accounts, your role as a real estate agent is to help your clients navigate the entire homebuying process.

Here are several ways you may support your clients during the escrow period:

  • Set expectations early: At the beginning of the homebuying process, explain what escrow is and how long it typically lasts. This gives clients a short overview so they know what to expect.
  • Clarify earnest money protocols for buyers:
    • When the deposit is due
    • How it will be handled (e.g., wired to an escrow company)
    • What happens if the deal falls through due to contingencies not being satisfied vs buyer defaulting on the terms of the purchase agreement (or contract)
  • Clarify earnest money protocols for sellers: Help them understand the role of earnest money in demonstrating buyer seriousness and protecting against lost time if the deal falls through due to the buyer defaulting on the purchase agreement (or contract).
  • Refer to the escrow holder for specifics: Escrow agents are neutral third parties with fiduciary duties. Let your clients know they can reach out to the escrow officer for questions about the escrow process or related requirements, wire instructions, or clarification of settlement figures. It's always best to direct financial and legal inquiries to the professionals managing that part of the process.
  • Explain the importance of contingency timelines: One of escrow's key roles is enforcing contract terms and deadlines. Missing a contingency deadline, like an inspection or loan approval, may jeopardize the buyer's deposit or delay closing.
  • Maintain excellent communication: Encourage clients to stick to the timeline and check in regularly with their lender, inspector, and escrow agent.

What Happens if Escrow Falls Through?

Unfortunately, not every escrow closes. If the buyer backs out or the loan is denied, escrow will follow the terms of the purchase agreement to determine who gets the earnest money. Sometimes it's refunded to the buyer. In other cases, such as missed deadlines or unjustified withdrawal, it may go to the seller. If disputes arise, escrow funds may be held until a legal resolution is reached. This emphasizes the importance of clearly written contracts and clear and consistent communication throughout the homebuying process.

Common client questions about escrow

  • When is my earnest money due? Typically, this occurs within one to three days after the purchase agreement is signed.[2] The exact deadline will be in the contract.
  • Is my earnest money refundable? Yes, typically if the deal falls through due to a contingency (like financing or inspection). If the buyer walks away for other reasons, the seller may be entitled to keep it.
  • Can I choose my own escrow company? In some cases, yes. However, the party paying for title insurance often selects the title/escrow provider. It's typically negotiated in the offer.
  • How long does escrow last? Most escrow periods are between 30 and 60 days.[3] It may be shorter or longer depending on financing, repairs, or title issues.
  • What's the difference between escrow and closing? Escrow is the process of managing the transaction; closing is the final event when ownership officially transfers and funds are disbursed.

Escrow Is the Initiator of a Smooth Transaction

While escrow accounts aren't the most exciting part of the homebuying process, they play a central role in making real estate transactions secure, fair, and efficient. For both buyers and sellers, escrow provides confidence that funds and documents are handled with professionalism and neutrality. As an agent, your job isn't to manage escrow. However, it is your role to help clients understand and navigate every step of the homebuying process. A knowledge of escrow accounts, combined with transparent communication and strong partnerships, will give your clients confidence at every step of the real estate process. It is important to pick a lender that has a proven reputation in being able to smoothly and efficiently execute the end-to-end home buying experience, which includes facilitating the escrow process.