Close of Escrow – What it Means | How it Works | FAQs

So, you’ve found your dream home, signed the contract, and the closing date is fast approaching. But what exactly happens on the big day? Close of escrow is a crucial step in the homebuying process, marking the official transfer of title from seller to buyer. Let’s dive into what is close of escrow, how it works, and answer some frequently asked questions.

What Does Close of Escrow Mean?

Close of escrow refers to the final step in a real estate transaction where all conditions of the sale are met, and ownership of the property is officially transferred from the seller to the buyer. In simpler terms, it’s when all paperwork is completed, necessary funds are paid, and the deal is finalized.

During this process, a third party, known as an escrow agent, holds important documents and funds until both the buyer and seller fulfill their obligations. Once everything is completed and verified, the escrow agent releases the funds to the seller, and the property title is transferred to the buyer, marking the official end of the escrow process.

What Does It Mean When a House Is in Escrow?

When a house is in escrow, it means a neutral third party—usually an escrow agent, attorney, or title company—is holding important documents and funds related to the transaction. This occurs after the buyer and seller agree on the sale terms but before the deal is finalized.

During escrow, the buyer’s earnest money deposit, property documents, and necessary paperwork are securely held while both parties work to meet the sale conditions, such as securing financing or completing inspections. Once all terms are satisfied, the escrow process ends, and the transaction moves forward to closing.

What Are the Steps in Closing Escrow?

Opening an Escrow Account

The closing escrow process begins with opening an escrow account, typically initiated by the seller but sometimes by the buyer. After an offer is accepted, the purchase contract specifies when the escrow deposit is due, which usually consists of an initial good-faith deposit followed by the remainder within seven to ten days after signing the contract. This earnest money shows the seller that the buyer is serious and will later be applied to the buyer’s down payment.

A neutral party, such as a title company, bank, or real estate attorney, manages the escrow account.

Buyer Provides Earnest Money Deposit

The buyer makes a good faith deposit, known as earnest money, which demonstrates their commitment to purchasing the property. The escrow agent holds this money until the sale is completed or canceled.

Buyer Approves the Seller’s Disclosures

The seller provides a disclosure document outlining any known issues with the property. The buyer reviews and approves these disclosures to move forward with the purchase.

Appraisal and Home Inspection

An appraisal is typically required by the lender to determine the property’s value, ensuring it aligns with the loan amount. A home inspection identifies potential issues. If problems arise, the buyer can request repairs or negotiate with the seller.

Obtaining Insurance Coverage

The buyer must secure homeowners insurance before closing, protecting the property in case of damage after the sale, and often required by the lender. Proof of insurance is provided during escrow.

Final Walkthrough

Before closing, the buyer conducts a final walkthrough of the property to ensure it’s in the agreed-upon condition, confirming that any repairs have been made and no new damage has occurred.

Closing

During closing, both the buyer and seller meet to sign necessary documents. The buyer finalizes their mortgage, pays closing costs, and the seller transfers the title to the buyer. Once everything is signed and payments are made, the escrow agent releases the funds, completing the transaction.

What Occurs at the Close of Escrow?

The close of escrow means all sale requirements have been met, allowing for the transfer of funds and ownership. This process begins with the buyer making their earnest money deposit. Once conditions are satisfied, the seller is paid, and essential documents, like the deed and closing disclosures, are signed.

The escrow agent disburses funds, ensuring the seller receives payment, while the buyer takes possession of the property by receiving the keys. This marks the buyer’s official ownership of the home.

What Happens on the Day of Closing Escrow?

On the day of closing escrow, all parties involved gather to finalize the sale. The buyer and seller review and sign necessary documents, including the deed and closing disclosure. The escrow agent ensures all conditions are met and funds are properly disbursed, transferring the buyer’s down payment and any loan proceeds to the seller.

Once the paperwork is complete and funds are settled, the title is officially transferred to the buyer, who receives the keys to the property, signifying the end of the escrow process and the beginning of their ownership.

Close of Escrow vs Closing Date: Are They Same?

No, close of escrow is not the same as the closing date, though they are often used interchangeably. The close of escrow refers specifically to the moment when all sale conditions are met, and funds and property are officially transferred. This can occur on or before the scheduled closing date, which is designated for the final transaction and may involve various parties, such as real estate agents and lenders, finalizing the sale.

While they are closely related, close of escrow focuses on the completion of the transaction, whereas the closing date is simply the day set for that event.

How Long Does an Escrow Take?

The duration of an escrow period typically ranges from 30 to 60 days, depending on factors such as the type of transaction, local market conditions, and the sale’s complexity. However, some escrows can close in as little as two weeks or take longer if contingencies or issues need resolution.

How Long After Signing Loan Docs Does Escrow Close?

Escrow usually closes within a few days to a week after signing the loan documents, allowing for the final review and processing of documents, as well as the transfer of funds. The exact duration can vary based on lender requirements and any outstanding conditions.

How Long After Funding Does Escrow Close?

Escrow typically closes on the same day as funding occurs. Once the lender disburses the funds, the escrow agent finalizes the transaction, recording the new title and transferring ownership to the buyer. There may be a brief delay for final paperwork or recording, but this generally happens quickly after funding.

What Prevents or Delays Close of Escrow?

Several factors can prevent or delay the close of escrow:

Delays: Unforeseen circumstances, such as longer-than-expected timelines for obtaining appraisals or scheduling home inspections, can cause delays. If a seller trusts the buyer is acting in good faith, they may renegotiate the closing timeline.

Contingencies: Common contingencies allow the buyer to back out of the deal and retrieve their deposit if issues arise, such as a low appraisal or significant defects found during a home inspection. Financing contingencies can complicate the process if the buyer’s mortgage falls through. However, these hurdles can often be resolved through negotiations, like reducing the sale price or addressing necessary repairs.

Title Issues: Problems discovered during a title search, such as liens or encumbrances, can delay securing a clear title and obtaining title insurance. Addressing these issues is crucial for a smooth closing process.

Important: “According to the National Association of Realtors, 74% of real estate sales closed on time, while 26% experienced delays and closed after the expected date.”

How Much Does It Cost to Close on a House?

When closing on a house, you can expect to pay between 3-4% of the purchase price in closing costs. For example, if you’re buying a $600,000 home, you should budget for closing costs ranging from $18,000 to $24,000, in addition to your down payment.

How Long After Escrow Closes Can I Move In?

You can typically move in on the same day escrow closes, as this is when the title is officially transferred. However, it’s essential to confirm with your real estate agent or escrow officer, as some transactions may have specific agreements regarding possession. If there are no contingencies or delays, you should be able to take possession immediately after closing.