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Close Of Escrow: What You Need To Know

June 07, 2023 5-minute read

Author: Ashley Kilroy


All the chaos of buying a new home is worth it when you have your new keys in hand. But there is a multilayered step between you and homeownership – the transaction itself.

You have to work with your seller to purchase the home you want. Close of escrow is the step during the closing process that ensures everyone did their part. Here’s what you need to know before starting.

What Does Close Of Escrow Mean?

Close of escrow is when the buyer, seller and all participating parties have fulfilled their legal responsibilities to one another. This is a regular occurrence that occurs in most real estate transactions.

It can be a little confusing, so let’s break down this phrase a bit more.

Escrow” refers to a legal arrangement where a third party holds on to assets, usually funds, on behalf of two parties. Once the two parties fulfill a condition, the third party releases the funds.

You may also hear the term “escrow accounts.” That is where the funds are held. Usually, you’ll also have an escrow account post-closing that puts aside part of each mortgage payment to cover property taxes and homeowners insurance until the close of escrow.


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Close Of Escrow Vs. Closing Date: What’s The Difference?

Close of escrow is part of closing on a house when both parties complete their half of the agreement. It’s important to note that close of escrow may or may not happen on the actual closing date. For instance, you could exchange all the necessary materials ahead of time before the title exchange. With nothing left to do, escrow is closed.

The buyer could also obtain the title at a later date, making that the closing date. If this happens outside the close of escrow, then the seller may not have to attend.

What Are The Steps To Achieve Close Of Escrow?

After you sign a purchase agreement, you’ll be on your way to the close of escrow. Here is a guide to help you along.

1. Buyer Provides Earnest Money Deposit

After the parties sign the purchase agreement, the buyer supplies an earnest money deposit. This is essentially a type of security deposit that shows the home seller you’re serious about buying the property.

Your escrow agent will then deposit the earnest money into the escrow account. As the third party, they have additional responsibilities, including safekeeping documents, funds and any keys. Once the parties fulfill the agreement, the escrow agent disperses the funds and guides the signing and filing of transactional documents.

2. Approve The Seller’s Disclosures

The Seller’s Disclosure, or the Property Disclosure, is a legal document filled out by the seller. It details the conditions of the property they’re selling and any defects or previous events that occurred there that the buyer should know about. This also includes any major problems the listing or seller’s agent noted.

Some sellers may not provide a Seller’s Disclosure if they live in a state using the caveat emptor rule. This puts the responsibility on the buyer to research the house. Regardless of whether you receive a Seller’s Disclosure, you should hire a home inspection service so there are no surprises.

3. Complete Home Appraisals And Inspections

Most lenders will require buyers to get a home appraisal of the property before they finalize mortgage loan terms. It helps them determine the value of your home, which impacts your mortgage approval; lenders won’t give a loan for an undervalued property without price negotiations with the seller. Conversely, the buyer can cover the difference.

Usually, the buyer pays for the appraisal. However, the home inspection gives them the opportunity to ask the seller to fix any issues found. If the seller doesn’t make the changes, you can walk away from the sale if you have a home inspection contingency in your purchase agreement.

4. Review All Escrow Documents

There are necessary documents that the buyer and seller should review. They can include the transfer deed, bill of sale, seller’s affidavit, signed mortgage deed, mortgage application and Closing Disclosure, which can all vary depending on the buyer’s financing.

It’s always recommended that the parties look over these documents with the help of a real estate attorney or experienced real estate agent. Note that a real estate attorney is required by law to be present at closing in 22 states.

5. Take A Final Walkthrough Of The Property

Buyers should examine the home one more time before closing. During the final walkthrough, inspect for any new damages and ensure the seller left everything agreed on (like appliances).

At this point, you probably can’t back out unless you find major damage. However, you can try to work with the seller to find a solution if something’s wrong. It’s also possible to renegotiate or withhold funds until the seller addresses any issues found.

6. Meet And Sign The Closing Documents

Closing processes vary by state. However, both the buyer and seller are typically present. A representative of the lender, the closing agent, real estate agent and legal representation may also attend.

There are many closing documents to sign, like title forms, transfer of tax declarations, the initial escrow statement, the deed of trust, mortgage-associated paperwork, Closing Disclosure and proof of insurance. The buyer must also prepare and submit a cashier’s check to cover the down payment and closing costs.

Once finished, the escrow agent prepares and presents the new owner with a deed to the home. It includes all the new information necessary.

What Type Of Issues Can Occur During Close Of Escrow?

Escrow gives buyers and sellers a chance to resolve any last-minute problems. That way, everyone leaves the transaction satisfied. Still, issues can happen. These are the most common:

  • Delays: Things like missing paperwork or an issue with the property cause delays. This can lead to a closing date extension at the request of either party.

  • Title issues: Sometimes, a title search reveals a problem. For example, a lien on the property can pause the transaction.

  • Contingencies: Essentially, contingencies are conditions for the transaction. If not resolved, they can halt the closing process. For instance, a house sale contingency gives the buyers a time limit to finalize the sale on their current property. It’s possible to waive contingencies or renegotiate terms if an issue arises.

The Bottom Line: Be Prepared For Close Of Escrow

The escrow process supports a fair transaction and allows both parties to protect their interests. At the end, the close of escrow occurs with the finalization of the sale. Overall, it signifies that both parties have fulfilled their responsibilities to one another.

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Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.