Real Estate Vocabulary: Escrow

July 24, 2020

It is easy to sometimes get lost in the world of real estate terminology.  That’s why each week I blog to explain different terms and vocabulary that you should understand when buying or selling a home.

This week is focused on the word “escrow.”

The word “escrow” in the real estate world is easy to define.  But, it’s also tricky to understand because it gets used in a few different settings.

To “escrow” money essentially means to place it with a third party for safekeeping.

When you put an offer on a home and give earnest money with that offer, those funds are placed in escrow (often, but not always with the closing attorney) until the closing date of the transaction, at which point the funds are transferred into the deal, credited to the seller.

This term does get used in another important place within real estate.  In my last vocabulary post, I discussed PITI and how taxes and insurance funds are often collected monthly as party of your payment and used to pay bills annually or semi-annually.  Those funds are “held in escrow” by the company servicing your loan.  That is to say, your funds are held by a third party (the lender) until they are used to pay the tax or insurance bill.

Finally, although you may personally hear it less frequently in this setting, “escrow” is also used in property management real estate transactions, such as when a property manager processes the rent or holds a tenants security deposit during their lease.

As always, if you have any questions, don’t hesitate to get in touch!

Gary A. MillerGary A. Miller