The Beginner's Guide to Escrow in Real Estate

Escrow in real estate is a neutral arrangement where a third party holds the buyer's money and the key property documents until every condition of the purchase agreement is met. That is, while a home is "in escrow," neither side controls that cash.

At Bentley's Real Estate, our agents guide buyers and sellers across Greater Newburyport through it, and understanding it is a smart first step.

What escrow does in a home sale

Start with who holds the money. The escrow holder is a neutral party who represents neither side, and depending on the state, that role may fall to an escrow company, a title company or a real estate attorney.

What escrow holds	Why it matters to you
Earnest money deposit	Proves the buyer is serious without handing the seller the money
Purchase agreement and instructions	Sets the conditions both parties must meet
Title documents and deed	Kept safe until ownership transfers
Loan funds from the lender	Released only once the closing terms are met

Read your escrow instructions the day they arrive, while questions in the transaction are still easy to settle.

How escrow protects the earnest money deposit

Buyers lose the most sleep over the earnest money deposit. Escrow protects it by keeping it away from the seller until the deal closes.

After the seller accepts an offer, the buyer typically deposits 1% to 3% of the purchase price into escrow. If the deal falls through because of a valid contingency in the agreement, the buyer generally gets that deposit back.

If the buyer walks away without a valid reason, the seller may be able to keep it, depending on the contract terms.

• The upside for buyers: your money sits with a neutral party, not the seller.
• The tradeoff: missing a contract deadline can put the buyer's deposit at risk.

The moment you sign the agreement, put each contingency date on your calendar and ask your attorney how each one works.

The escrow process, step by step

Those contingency dates sit inside a larger timeline, one that runs from accepted offer to recorded deed in six main steps.

Step	What happens	Who usually handles it
1. Offer accepted, escrow opened	The signed purchase agreement goes to the escrow holder	Agent, escrow company or attorney
2. Earnest money deposited	The buyer submits funds within a few days	Buyer
3. Inspections and due diligence	Home inspection, disclosure review, repair negotiations	Buyer and agents
4. Title search and insurance	The title company checks for liens or disputes	Title company
5. Appraisal and loan underwriting	The lender confirms value and finishes the mortgage	Lender
6. Closing and disbursement	Final documents signed, funds wired, deed recorded, seller paid	Escrow holder or attorney

The escrow period typically lasts 21 to 45 days. Cash deals can move faster.

The lender, the attorneys and the agents each own a piece of that timeline.

Never wire money based only on emailed instructions.

Call your attorney or escrow holder at a number you already trust first.

What buyers and sellers do during escrow

While the professionals work through those steps, buyers and sellers each have a short to-do list of their own.

• Buyers: deliver funds in the exact form your attorney or escrow holder asks for, answer lender requests quickly, avoid new credit, and attend the final walkthrough.
• Sellers: finish any agreed repairs, send the title company what it needs, keep the home in the same condition, and plan the move around the closing date.

Afterward, keep your closing statement and paperwork somewhere safe for tax purposes, and ask a tax professional what to hold onto.

Purchase escrow vs a mortgage escrow account

For many homeowners, escrow keeps going after closing day. The purchase side wraps up, and a second kind of escrow begins.

Type	When it applies	What it pays
Purchase (sales) escrow	During the home sale	Holds funds and documents until closing
Mortgage escrow account	After closing, set up by many lenders	Property taxes and homeowners insurance

With a mortgage escrow account, the lender sets aside part of each monthly mortgage payment to pay property taxes and homeowners insurance on time, spreading those annual bills across 12 months. Some states, including Massachusetts, require lenders to pay interest on escrow accounts, which is why it's worth asking your lender how yours works.

Review the yearly statement your lender sends, since changes in tax bills or coverage costs can shift what you pay each month.

Escrow for Massachusetts and Greater Newburyport buyers

Seems like a lot of moving parts? Back on the purchase side, North Shore escrow has its own local habits.

In Massachusetts, the deal terms live in the purchase and sale agreement, and real estate attorneys commonly play a central role at closing. Our agents help keep everyone moving toward closing and flag problems early, while legal, tax and lending questions belong with your attorney, lender or tax professional.

Bentley's Real Estate has been the #1 real estate brokerage in Greater Newburyport by market share seven years running, with 60+ agents working from Newburyport to Amesbury and beyond.

A guide through escrow

If you want a guide through it, call us at (978) 572-1200.