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Close Of Escrow: What You Need To Know

March 08, 2024 4-minute read

Author: Ashley Kilroy


When closing on a house, there’s one final step between you and homeownership: the transaction itself.

Close of escrow is the step during the closing process that ensures everyone does their part before money is released and the title is transferred. Here’s what you need to know before starting.

What Does Close Of Escrow Mean?

The phrase “close of escrow” can be a little confusing, so let’s break it down.

The term “escrow” refers to a legal arrangement where a third party holds on to assets, like earnest money, on behalf of two parties. A “close of escrow” or “closing escrow” means all parties involved in the sale have satisfied the terms of the deal and the transaction can be completed.

You may also hear the term “escrow account.” That’s where the funds are held until they can be released at the close of escrow.

Using a close of escrow helps protect both parties during a real estate transaction. Once the buyer, seller and all participating parties fulfill the conditions of the loan contract, the neutral third party releases the funds – thus closing the escrow account.

It’s also important to note that buyers will have another type of escrow account where a portion of each monthly payment will be held to cover property taxes and homeowners insurance. But this type of escrow account isn’t used to hold earnest money and stays open after the closing.


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

Close of escrow can be part of closing on a house when both parties complete their half of the agreement. The close of escrow may or may not happen on the actual closing date, when the title changes hands.

For instance, you could exchange all the necessary materials ahead of time before the title exchange, meaning the close of escrow happened before the official closing. If the buyer receives the title after the close of escrow, the seller might not have to attend the final closing.

The Steps To Closing 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 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.

2. Buyer Approves 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 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 have a home inspection completed so there are no surprises.

3. Buyer Orders A Home Appraisal And Inspection

Most lenders will require buyers to get a home appraisal before finalizing the mortgage agreement. It helps them determine the value of the home, which impacts the mortgage approval and terms.

The home inspection gives buyers 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. Buyer And Seller Review All Escrow Documents

The buyer and seller should review all documents, which can include the transfer deed, bill of sale, seller’s affidavit, signed mortgage deed, mortgage application and Closing Disclosure.

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. Buyer Takes A Final Walk-through Of The Property

Buyers should examine the home one more time before closing. During the final walk-through, the buyer will check 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. All Parties 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 representative 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 property issues 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: Contingencies are conditions that must be met for the transaction to proceed. 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.

If you’re ready to start your own journey to homeownership today, apply for a home loan with Rocket Mortgage. One of our Home Loan Experts can help walk you through the entire process.

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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.