In Escrow

What is 'In Escrow'

In escrow is a temporary condition of an item such as money or a piece of property that has been transferred to a third party with the intentions of delivery to a grantee as part of a binding agreement. Valuables in escrow are generally delivered by an escrow agent to a grantee upon satisfaction of outlined terms.

BREAKING DOWN 'In Escrow'

Escrowed items are most commonly found in real estate transactions. Property, cash and the title to the property are often held in escrow until all specified conditions are met and transfer of ownership can occur. Lawyers will most commonly act as escrow agents in such situations.

What Happens While Real Estate Is in Escrow

While property is held in escrow, the buyer cannot take possession of or occupy the space. Real estate deals must clear a series of stages during the escrow process. An appraisal of the property must be conducted if it has not already been done. There may be issues with the transaction if the appraised value of the property is lower than the agreed upon purchase price.

Lenders will not disburse financing that is above an appraised value regardless of what deal price the parties committed to. The buyer could try to find funding to cover the missing portion of the agreed purchase price for the property. If they cannot make up the difference while the real estate is in escrow, the transaction might be terminated.

Other issues can arise while a property is in escrow. The buyer could have difficulty securing the necessary insurance and other policies needed to complete the transaction. Even if a title search was performed, there may be liens and other claims attached to the property that surface. The buyer may have wanted the property for a use that does not match current zoning regulations. The seller might seek a variance while the property is in escrow to allow the buyer to proceed with their intended plans upon taking full ownership of the real estate.

The purchase might have included guarantees that the seller would address needed repairs to the property. This could include the removal of landscape features such as trees or the reconstruction of part of a building. If the seller does not make good on those promises while the property is in escrow, then the deal might be ended.

The intent of keeping property in escrow is to give assurance to all parties that the mutual responsibilities outlined in the agreed upon contract will be fulfilled.