An escrow account is one of those things you know you need when selling your home – it’s just part of the process.
But nobody expects you to be an expert. It’s only natural to have questions about what an escrow account really is and how to go about setting yours up.
The great thing is that once you break escrow down, it’s actually pretty straightforward. This guide walks through the steps to open an escrow account so you can stay ahead of the paperwork and know exactly what’s happening with your sale.
What Is an Escrow Account? (and Why It’s Important for Selling Your Home)
When you sell your home, a lot of money and paperwork changes hands. Instead of the buyer paying you directly (and hoping everything else gets sorted later), the money goes into an escrow account. An independent third party holds onto it while the sale is being finalized.
During this time, escrow is used to handle one-time costs tied to the sale like inspections, contracts, property taxes, title insurance, and final paperwork. Your regular mortgage payment stays your responsibility until the sale officially closes, at which point the remaining balance is paid off using the proceeds from escrow.
This setup protects everyone involved. You know the buyer’s money is real and secure, and the buyer knows funds won’t be released until the home legally becomes theirs.
It’s also important to know that this escrow account is separate from your monthly escrow payment. Your monthly escrow payment is part of your mortgage and typically covers ongoing costs like property taxes and homeowners insurance while you own the home. During the sale, escrow is only used to manage the one-time payments needed to complete the transaction.
Who Sets Up the Escrow Account?
In most cases, you won’t have to lift a finger to get the account open. The process is usually handled by a title company or an escrow agent once you and the buyer are under contract. They act as the neutral third party and handle the setup as part of the closing process.
Your real estate agent will normally coordinate this for you, so you’re not left figuring it out on your own. From there, the escrow agent manages the account, holds the funds, and makes sure everything moves along securely until the sale is complete.
What Is the Escrow Process?
While you usually won’t be opening the escrow account yourself, it helps to know how the process typically plays out so you always know what to expect next.
Open the Escrow Account
Once you and the buyer are under contract, a title company or escrow agent is chosen. They open the escrow account and reach out to both sides to get things started. This usually means confirming the details of the sale and letting you know what documents they’ll need upfront so you’re ready to go when the time comes.
Submit Required Documents
You’ll be asked for a few key documents to confirm the details of the sale and your existing loan. These usually include the signed purchase agreement, a valid photo ID, and information related to your current mortgage like loan payoff statement (not your monthly loan payment itself).
You may also be asked for recent property tax or homeowners insurance information so final amounts can be calculated correctly at closing.
The buyer submits their own paperwork and deposit at this stage. Getting these documents squared away early helps everything stay on schedule and avoids last-minute hold-ups.
Complete Inspections and Contingencies
While the buyer’s deposit is tucked away safely in escrow, the due diligence phase kicks off. This is the buyer’s chance to look under the hood of the home with inspections and appraisals. If anything pops up – like a needed repair or a credit – it will be resolved during this step.
Finalize the Sale and Close Escrow
Once everything’s signed and cleared, the escrow agent wraps things up. The money gets released to you and ownership switches to the buyer. Congrats, you’ve officially closed the deal!
Tips for an Easy, Stress-free Escrow Process
Escrow is safe and simple enough when you know how the process works, but it can get stressful when you feel like you’re waiting in the dark. The good news is that you don’t need to micromanage every step to keep things moving. A few small habits go a long way in keeping the momentum going so you aren’t stuck in limbo.
- Gather your files early. You won’t need every single document immediately, but having your paperwork within reach saves you from a panicked search when the agent asks for something specific.
- Don’t sit on emails. Most delays are just down to slow replies. Jumping on requests from the escrow agent, even with a quick “got it,” keeps your file at the top of their pile.
- Lean on your real estate agent. They do this every day. If you’re unsure about the status of your sale, just check in with them. They can usually spot potential snags before they turn into real problems.
- Ask about the jargon. Escrow is full of weird terms. If something sounds like a different language, just ask. It’s better to understand what you’re signing now than to worry about it later.
- Watch the calendar. Just knowing the key dates helps you stay ahead of the game, so you aren’t caught off guard by a deadline you forgot was coming.
Closing on a House? Let Brick City Title Handle the Details
We’re here to act as your closing coordinators, setting up the escrow, protecting funds, and keeping the paperwork moving so you don’t have to worry about any of it.
The Brick City team stays in constant contact with your agent and the buyer’s side, flagging any issues early so your closing day stays on track.
Selling your home is a huge milestone. Let’s make sure the final steps are the easiest ones. Reach out today to see how we can help.
