When Does Escrow Start in a Real Estate Transaction?

Real estate transactions involve complex steps to facilitate property ownership transfer. Escrow is a central component, providing a secure and impartial environment for managing the transaction’s financial and legal aspects. It functions as a neutral third party, holding all funds and documents related to the sale until all conditions of the agreement are met. This arrangement helps ensure both the buyer’s investment and the seller’s property are protected throughout the transaction.

The Pre-Escrow Phase

Before escrow officially commences, several steps and agreements must be completed. The process begins with the buyer and seller reaching a mutual understanding on the sale terms, including the purchase price, contingencies, and anticipated closing date. This agreement is formalized when an offer is extended and accepted, laying the groundwork for the transaction.

Following offer acceptance, the parties execute a legally binding purchase agreement, also known as a purchase and sale contract. This document outlines all agreed-upon conditions, responsibilities, and timelines for both buyer and seller. The fully executed purchase agreement dictates the specific terms under which escrow will be opened and managed.

A buyer’s commitment is demonstrated through an initial deposit, known as earnest money. While the agreement for this deposit occurs in this pre-escrow phase, the funds are usually transferred to the escrow agent once escrow officially begins. This earnest money deposit signals the buyer’s good faith and intent to proceed with the transaction.

The selection of the escrow or title company, the neutral third party managing the escrow, is also a pre-escrow step. While real estate agents often recommend a company, the buyer and seller ultimately agree on the chosen entity. This selection is finalized before documents are submitted to formally open escrow.

Gathering essential information from both buyer and seller is another prerequisite. This includes full legal names, contact information, the precise property address, and all agreed-upon terms from the purchase contract. This data ensures the escrow company has necessary details to initiate and manage the transaction file.

Initiating Escrow

The official commencement of the escrow period is marked by specific actions, primarily the delivery of the fully executed purchase agreement to the chosen escrow or title company. This act formally signals the start of the transaction’s controlled phase. Once the escrow company receives this document, they proceed to establish a dedicated file for the transaction.

Upon receiving the executed contract, the escrow officer takes immediate responsibility for creating the escrow file and assigning a unique escrow number. This number serves as a primary identifier for all communications and documentation related to the specific real estate transaction.

The escrow company then formally notifies all relevant parties, including the buyer, seller, and their respective real estate agents, that escrow has been opened. This notification often includes an “opening package” that provides initial details and instructions.

The actual transfer of the earnest money deposit to the escrow account typically coincides with or immediately follows the opening of escrow. This financial commitment from the buyer is held securely by the escrow agent, demonstrating the buyer’s continued intent to purchase. The funds remain in this neutral account until all conditions of the sale are satisfied.

Based on the terms outlined in the purchase agreement, the escrow company begins to draft initial escrow instructions. These instructions formalize the responsibilities and requirements of each party within the escrow framework. They serve as a roadmap for the escrow officer to follow, ensuring that all contractual obligations are met before the transaction can be finalized.

Early Actions in Escrow

Immediately following escrow opening, a series of actions are initiated to progress the transaction. One of the first steps involves the distribution of the initial escrow instructions to all parties for their review and signature. These instructions formalize the agreement of the buyer and seller with the terms under which the escrow holder will operate.

The escrow or title company promptly orders a preliminary title report for the property. This report identifies any existing liens, encumbrances, or other issues that could affect the property’s clear ownership. The goal is to ensure that the seller can transfer a clean title to the buyer at closing.

If the buyer is obtaining financing, the escrow company establishes direct communication with the buyer’s lender. This coordination is essential for the timely exchange of loan documents and to facilitate funding of the purchase. Smooth communication between these parties helps prevent delays in the closing process.

The escrow officer also begins tracking the various contingency periods outlined in the purchase agreement. These contingencies often include deadlines for property inspections, appraisal completion, and loan approval. Monitoring these timelines ensures all conditions are met within the agreed-upon timeframe.

Initial requests for information are made to both the buyer and seller to gather all necessary documentation. This may include homeowner association documents, property disclosures from the seller, or specific requests related to repairs agreed upon in the purchase contract. Collecting these details early streamlines the closing process.