The Difference Between Holding Escrow vs. Real Estate Escrow

Real estate escrow is a process where funds and documents related to the purchase of real estate are held by a third party on behalf of the buyer and seller.

The purpose of escrow is to ensure that all terms and conditions of the sale are met before the funds and documents are transferred to the buyer and seller. There are two primary types of escrow: holding escrow and real estate escrow.

What Is Escrow in Real Estate?

An escrow account is set up by a third party during the home-buying process. It holds money on behalf of both the buyer and seller until closing, at which point it is dispersed according to the sales contract.

Escrow in Real Estate: How Does it Work?

A real estate escrow is created when a buyer and seller enter into a contract to purchase a property. The contract will specify an escrow company that will hold and disburse the funds involved in the transaction.

The buyer will typically deposit money into the escrow account as earnest money, which is used to show that they are serious about buying the property. The earnest money is typically 1-2% of the purchase price and is non-refundable if the buyer backs out of the deal.

The seller will also deposit money into the escrow account, which is used to pay for things like taxes, insurance, and repairs.

Once all of the money has been deposited into the escrow account, the escrow company will disburse the funds according to the terms of the contract.

If you’re a realtor or real estate investor, it’s important to understand the difference between holding escrow vs. real estate escrow. In this blog post, we’ll discuss the key differences between these two types:

Holding Escrow vs Real Estate Escrow

The main difference between holding escrow and real estate escrow is that holding escrow is used to hold funds during the pendency of a transaction, while real estate escrow is used to facilitate the transfer of funds and documents at the close of a transaction.

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Here’s a more detailed breakdown of the key differences between holding escrow vs. real estate escrow:

Holding Escrow

  • Holding escrow is typically used to hold earnest money deposits made by buyers.
  • The funds are held in an account until they are disbursed at closing.
  • If the deal falls through, the earnest money deposit is typically returned to the buyer.
  • Holding escrow is typically handled by a title company, attorney, or escrow agent.

Real Estate Escrow

  • Real estate escrow is used to facilitate the transfer of funds and documents at the close of a transaction.
  • The closing agent will prepare all necessary documents and coordinate with the buyer, seller, and lender to ensure that everything is in order before closing.
  • Once all parties have signed off on the deal, the funds and documents are transferred to the appropriate parties.
  • Real estate escrow is typically handled by a title company, attorney, or escrow agent.

Pros and Cons of Hiring and Escrow Company

What Are the Benefits of Using an Escrow Company?

There are many benefits to using an escrow company in a real estate transaction. Here are a few of the benefits:

  1. An escrow company can help to ensure that all of the funds and documents involved in the transaction are handled properly. This can help to avoid any potential problems that could arise during the course of the transaction.
  2. They can help to speed up the closing process by handling all of the paperwork and disbursing the funds according to the terms of the contract.
  3. They provide peace of mind for both buyers and sellers by acting as a neutral third party in the transaction.

What Are the Disadvantages of Using an Escrow Company?

There are a few potential disadvantages to using an escrow company in a real estate transaction. Here are the common disadvantages:

  1. The fees for using an escrow company can add up, which can increase the overall cost of the transaction.
  2. An escrow company can potentially delay the closing process if there are any problems with the paperwork or disbursement of funds.
  3. There is always the potential for fraud when working with an escrow company. This is why it’s important to choose an escrow company that is experienced and reputable.

Benefits of Using a Real Estate Escrow Company

There are many benefits of using a real estate escrow company, including:

  • Peace of mind knowing that all funds and documents are being handled by a professional third party;
  • Coordinates with all parties involved in the transaction to ensure that everything is moving along smoothly;
  • Provides professional and helpful guidance and advice throughout the process;
  • Using an escrow company can help to avoid disputes between buyers and sellers; and;
  • Guarantees that the escrow company will handle all of the paperwork and documentation required for the transaction.
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Steps Involved in the Real Estate Escrow Process

There are a few steps involved in the real estate escrow process:

  1. The buyer and seller will enter into a contract to purchase the property.
  2. The buyer will deposit earnest money into the escrow account.
  3. The seller will deposit money into the escrow account to pay for things like taxes, insurance, and repairs.
  4. The escrow company will disburse the funds according to the terms of the contract.
  5. The transaction will be complete and the property will be transferred to the buyer.

Which Type of Escrow Should You Use?

The type of escrow you use will depend on the specifics of your transaction. If you’re a buyer, you’ll likely only need to use a holding escrow to hold your earnest money deposit. If you’re a seller, you’ll likely need to use real estate escrow to facilitate the transfer of funds and documents at closing.

If you’re not sure which type of escrow is right for your transaction, it’s a good idea to consult with a real estate attorney or escrow company. They are the best professionals for this situation.

How to Choose the Right Real Estate Escrow Company for You

If you’re looking for a real estate escrow company, it’s important to choose one that is experienced and reputable. You can ask your real estate agent or attorney for recommendations, or you can search online for reviews.

It’s also a good idea to meet with a few different companies to get a sense of their services and fees. Be sure to ask about their experience with handling transactions like yours, and be sure to understand all of the fees involved before making a decision.

The Bottom Line

An escrow account is a great way to protect both buyers and sellers in a real estate transaction. However, it’s important to understand the difference between holding escrow and real estate escrow.

There are a few steps involved in the real estate escrow process, and it’s important to choose an experienced and reputable escrow company. There are many benefits to using an escrow company, but there are also a few potential disadvantages. Ultimately, the decision of whether or not to use an escrow company will come down to the specific needs of your transaction.

 

If you have any questions about using an escrow company in your real estate transaction, it’s a good idea to consult with a real estate attorney or escrow company.

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