What is Escrow and Why is it Needed?

Courtesy of the Talon Group

What is Escrow?

An escrow is an arrangement in which a neutral third party (the Escrow Agent) assembles and processes all of the components of a real estate transaction (including legal documents), records the transaction, and ultimately, disburses and distributes funds according to the Buyer's and Seller's instructions. Your transaction is typically closed by an Escrow Officer or LPO (Limited Practice Officer).

People buying and selling real estate often open an escrow for their protection and convenience. Both the Buyer and Seller relay on the Escrow Agent to carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. If the instructions from all parties to an escrow are clearly drafted, the Escrow Officer can take many actions on behalf of the Buyer and Seller without further consultation. This saves much time and facilitates the closing of the transaction.

Typical roles in the Escrow process:

The Seller/Agent

The Buyer/Agent

The Lender (when applicable)

The Escrow Agent

Once the proper documents have been recorded, the Escrow Agent will disburse and distribute funds to the proper parties.

In Summary

Some of the Escrow Officer's responsibilities include:

Escrow is the process that assembles and processes all the components of a real estate transaction. The transaction is officially closed when the new deed is recorded, thus transferring ownership from the Seller to the Buyer. The Escrow Agent is a neutral third party acting on behalf of the Buyer and Seller under the guidelines set forth by the State of Washington Department of Financial Institutions.

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