Escrow Agent In Real Estate: What To Know

When many people think of a real estate transaction, they think of two sides: the buyer and the seller. However, there’s also another party involved whose job it is to remain neutral throughout the home buying process. This person is known as an escrow agent. While perhaps lesser known, this neutral player has many important responsibilities, including enforcing agreements made in the contract and safeguarding money.

Let’s dive into what escrow agents do in real estate, including how they help to protect the interests of both the buyer and the seller.

What Is An Escrow Agent?

If you’re planning to sell or buy a home in the near future, escrow (and the agent or escrow company who handles it) will very likely be a part of that. What does that mean?

In a real estate transaction, an escrow agent is a neutral third-party entity who holds onto funds and assets related to the transaction until both parties have satisfied their contractual obligations and the sale can be closed on. An escrow agent may also be referred to as an escrow officer.

In a home purchase, any money that moves between the buyer and seller, such as the buyer’s earnest money deposit, will be held in escrow until the contract allows for the money to be disbursed to the appropriate parties. This process protects everyone involved in the transaction and ensures that no one is able to just walk away with money or assets that don’t legally belong to them yet.

Escrow agents have a fiduciary duty to both parties involved in the transaction, meaning that they are required to act in the financial interests of both the buyer and the seller and must ensure that the terms of the contract are followed.

Who Is The Escrow Agent In A Real Estate Transaction?

Typically, the role of the escrow agent will be played by representatives from a title company, mortgage lender or an attorney, but it can depend on the laws and customs in your state. Regardless of who it ends up being, you can fully trust your escrow agent knowing they are there to execute the contract and ensure the process goes smoothly.

The Importance Of An Escrow Agent: An Example

To help you better understand the importance of having an escrow agent during the home buying process, let’s take a look at an example in which an escrow agent isn’t present. One adult, Taylor, is selling their home. A buyer, Casey, offers a $10,000 earnest money deposit to Taylor. Instead of putting this cash in escrow, Casey hands it directly to Taylor. They move ahead with the deal, but when it comes time for the home inspection, the inspector’s report turns up with serious issues.

Taylor and Casey both agreed in the purchase contract that if the home inspection showed significant issues, Casey could back out and get their earnest money back. However, Taylor decides they don’t want to abide by this anymore and says that they aren’t going to give the earnest money back if Casey walks away from the sale.

In this situation, having the money in escrow would h