What Is a Double Escrow and How Does It Work?

Escrow is a neutral third-party arrangement that temporarily holds assets or funds until specific transaction conditions are met, safeguarding both parties. A double escrow builds on this concept, involving two separate yet simultaneous real estate transactions for the same property.

Understanding Double Escrow

A double escrow, often referred to as a double closing or simultaneous closing, involves two distinct real estate transactions that occur back-to-back, typically on the same day. Three primary parties are involved: the original seller (Party A), an intermediary buyer (Party B), and the final buyer (Party C). Party B first enters a purchase agreement with Party A, then immediately sells the property to Party C through a separate agreement.

The key characteristic is the synchronized timing of these two closings, often managed by the same escrow agent. Funds from the second transaction (B to C) are frequently used to finance the first (A to B). This allows Party B, the intermediary, to complete their purchase from Party A without using their own substantial capital, as the final buyer’s funds effectively “pass through” to the original seller.

Common Applications of Double Escrow

Double escrow transactions are typically employed when an investor seeks to quickly buy and resell a property, often called “flipping” or wholesaling. This strategy allows the intermediary to secure a property at one price and promptly sell it at a higher price, profiting from the spread without holding the property long-term. A significant benefit is maintaining confidentiality regarding the intermediary’s profit margin, as separate closings mean distinct settlement statements, keeping the exact profit private from Party A and Party C.

Another practical application involves facilitating a quick property transfer when either the buyer or seller desires discretion. The intermediary can serve as a bridge, enabling the transaction to proceed while respecting privacy. Additionally, if an initial contract between Party A and Party B contains a “no assignment clause,” preventing Party B from assigning their contract to Party C, a double escrow becomes a necessary alternative.

Executing a Double Escrow Transaction

Bringing a double escrow transaction to completion requires precise coordination. The process begins with the intermediary (Party B) securing two distinct purchase agreements: one with the original seller (Party A) and another with the final buyer (Party C). These agreements outline the terms of each sale, including prices, contingencies, and closing timelines, and must align for simultaneous closing.

The escrow officer plays a central role in managing the intricacies of a double escrow. The officer receives and holds all funds and documents related to both transactions. Responsibilities include preparing and reviewing deeds, title documents, and other legal paperwork, coordinating with all parties. The officer ensures all conditions in both escrow instructions are met before any funds are disbursed or deeds are recorded.

On the day of closing, both transactions are executed sequentially. Funding for the first transaction often comes from the final buyer’s funds, held in escrow and then released to cover Party B’s purchase from Party A. If direct “pass-through” funding is not practical, Party B may utilize transactional funding, a short-term loan designed to cover the initial purchase until the second closing repays the loan. Upon completion, the escrow officer disburses funds and ensures the proper recording of deeds, completing the transfer of ownership.