If you’re buying or selling a home in Washington state, you will be going through the escrow process. This is a crucial stage in a real estate transaction, and it can be confusing for both homebuyers and sellers. In this blog post, we’re diving into the escrow process so you learn what it is and why it’s essential.

“You’re in escrow.” What does that mean?

Real estate agent on the phone telling his client "you're in escrow"

If you’re in escrow, the buyer and the seller have agreed on all contractual terms (mutual acceptance) and are now working to satisfy those terms and close the deal.

Escrow refers to the arrangement where a neutral third party—typically an escrow officer—facilitates the transaction between a home seller and buyer. The escrow officer holds on to the buyer’s money and the title and supporting documents while both parties fulfill their obligations under the purchase and sale agreement. The deal is closed when all terms are satisfied, all paperwork is signed, escrow has received the buyer’s funds, and title has been transferred to the buyer’s name with the county recorder’s office.

The escrow system provides sellers, buyers and agents peace of mind by mitigating potential risks and ensuring all conditions are fulfilled before the transaction concludes.

The escrow process step-by-step

1. Opening escrow

Escrow is opened when a buyer has made an offer to purchase the property and the seller has accepted it. The seller or the seller’s agent typically opens the escrow account. However, it could be the buyer or the buyer’s agent who opens escrow. Which company will perform escrow services is a negotiated term in the real estate contract— the buyer and seller have to agree on the company. In Western Washington, it’s customary for the sellers to pick the escrow company, but not always.

The account is managed by the escrow officer, who may work for a title company or an independent escrow company. Once the account is opened, the escrow officer sends an opening package with paperwork for both the buyer and seller to complete. This is how the escrow officer gathers all the necessary information about the buyer, seller, and property, to be able to communicate with each party and ensure the transaction closes on schedule.

2. Earnest money deposit

Once escrow is opened, the buyer makes the earnest money deposit. Earnest money is the deposit money the buyer agreed to in their offer. This can be done by personal check or the funds can be wired to escrow. The earnest money shows that the buyer is serious about closing on the home. If they can’t or won’t close, then they may be forced to forfeit their earnest money deposit. The earnest money deposit is applied to the buyer’s down payment at closing.

A young woman writing an earnest money check for her deposit to send to the escrow officer

3. Inspection and appraisal

If the buyer included an inspection contingency in their offer, this is when it will take place. If issues are discovered during the inspection, the buyer could negotiate with the seller for repairs and/or credits.

The lender also completes an inspection of sorts during the escrow period. The lender will require an appraisal of the property to confirm that its value is worth the amount they are lending the buyer.

For the buyer, the inspection ensures that the property meets their expectations. For the lender, the appraisal helps mitigate their risk by not loaning more funds than what the property is worth.

A home inspector arriving to conduct an inspection during the escrow period

4. Securing financing

While in escrow, the buyer finalizes their home loan. This is separate from the pre-approval process the buyer went through prior to making an offer on the home. The loan closing process is when the lender re-verifies financial information and conducts a thorough underwriting of the buyer’s credit profile. The buyer may need to provide additional documentation to the lender, such as more recent bank statements or tax returns.

Buyers also need to be careful not to make critical financial mistakes during the escrow period—like taking on new debt—as those mistakes can derail the transaction.

5. Title search and insurance

The title officer will research the title history. This is to make sure that the seller of the property actually has the right to sell it and that there are no liens or disputes recorded against the title. The title research will also show any recorded boundaries and easements.

Once cleared, the title is ready to be transferred to the new owner. In a typical real estate deal, the seller will provide a title insurance policy for the buyer. This protects the buyer from someone coming along and challenging their ownership of the property. If you are using a mortgage to purchase the property, the lender will require you to purchase a lender’s policy to protect their interest in the property. Title insurance is a safeguard that provides lasting peace of mind about the legality of the property acquisition.

Getting to the finish line: closing escrow

Escrow is closed, couple is getting the keys to their new house from their real estate agent

At least three days before closing, the lender will send the closing disclosure to the buyer. This outlines the final terms of the loan, including the interest rate, loan amount, monthly payments, and any other costs. This disclosure gives the borrower a clear snapshot of the loan terms and total closing costs. It’s a key piece of documentation that helps the buyer understand exactly what they are committing to with their mortgage. The buyer also completes a final walkthrough to ensure the property is in the agreed-upon condition.

The escrow officer will contact both the seller and buyer to schedule signing appointments, to sign closing documents like the mortgage agreement and title deeds. The escrow officer will facilitate this meeting, ensure all paperwork is in order, and arrange for the transfer of funds and property title. This is the last chance for either the buyer or seller to address any remaining concerns before ownership transfers. Once this is complete, documents are recorded with the appropriate local agency and keys are delivered to the new owners. Escrow is closed!

How long does escrow take?

Many people will tell you that the escrow process will take 30 to 45 days, but that information is outdated. It depends on where the buyer is with their financing and what is agreed upon in the contract. If it’s a cash buyer, then you could likely close in a week, but the seller might not want to move that fast. If you are getting a mortgage and working with an efficient lender who does a lot of legwork up front, then you could close in as fast as 10 days—but most lenders will want 20 to 25 days to complete the loans. When time is of the essence, it’s a good idea to work with a lender who can get the job done quickly.

Escrow is beneficial for both home sellers and buyers

Escrow is not just a procedural step; it’s an essential part of securing your real estate transaction with confidence. Each stage, whether you’re a buyer depositing earnest money or a seller turning over the keys, is designed to ensure that every detail is accounted for and that both the buyer and seller meet their obligations. By familiarizing yourself with the intricacies of escrow, you equip yourself with the knowledge needed to navigate this crucial phase, paving the way for a smooth and successful real estate transaction.

Bonus: First American Title has a great document that outlines “the life of an escrow” from the buyer, seller, escrow officer, and lender perspective. Check it out here.