McCarthy Thielman Realty
McCarthy Thielman Realty
Brinda S. Thielman, Broker/Owner, McCarthy Thielman RealtyPhone: (602) 228-9194
Email: [email protected]

What is escrow? Understanding the basics

by Brinda S. Thielman, Broker/Owner 06/09/2024

Escrow is an essential real estate term you’re sure to encounter in the home buying or selling process. But what is escrow, exactly? Here is a basic guide to understanding this important part of real estate transactions:

Defining an escrow account

Escrow is a legal agreement where funding and assets are held by a third party. This neutral third-party keeps the funding safe as a transaction is being completed. Once the transaction is completed, funds are allotted to the correct parties. An escrow agreement is often seen in real estate transactions, but can also be seen with other industries such as with art, jewelry and more. 

Once the money goes into escrow, the seller has to follow through to finalize the sale. Once the deal is complete, the escrow money goes to the seller and is subtracted from the total mortgage payment price. 

Escrow is also used by mortgage lenders after the closing of a home. Your lender takes a share of your monthly mortgage payment and puts it into an escrow account. When property taxes and insurance are due, the money is released. This can be very helpful for homeowners as it takes the task off their plate. 

Understanding how escrow works

Escrow is used for two primary reasons in the real estate industry: good faith deposits and funding for insurance and property tax fees. Good faith deposits testify to the buyer’s sincerity and earnestness to following through with purchasing the home.  

For example, a seller may invest money to make repairs on a property once an offer is accepted. They may have purchased new light fixtures or new carpet at the request of the buyer. 

The seller keeps the earnest money if the buyer backs out of the agreement. This supplements the money they paid due to trying to fulfill their end of the deal. 

Earnest money deposit

The earnest money deposit goes towards the home’s down payment once the home purchase succeeds. An escrow officer will allot payments and will deliver the deed to the county recorder to note before closing the escrow account. 

What are the benefits of escrow? 

An escrow account ensures both parties are financially protected. Using an escrow company ensures funds are handled correctly. Usually, payment into this account comes from both the buyer and the seller, which encourages accountability on both ends. 

Having an escrow account is a vital part of the home selling and home buying. Speak with a trusted real estate agent and escrow officer to better understand your options.

About the Author

Brinda S. Thielman, Broker/Owner

Hi! I'm Brinda Thielman. Thank you for your interest in exploring Arizona real estate with me.

As a native Arizonian, I have seen the growth in the “Valley of the Sun” first hand. With over 30 years in the real estate industry, I know how challenging and intimidating buying and selling a home can be. That's where I come in! When I started my real estate career, I quickly found I loved every aspect of the home buying and selling process, from touring a home, researching the best mortgage loan for my clients, new construction details and even the negotiation and closing process. 

In 2015, I help found McCarthy Thielman Realty, LLC. Today it is one of the leading boutique real estate firms specializing in North Phoenix real estate.

My mission is to help you accomplish your real estate goals and dreams - "I'll Lead You Home!"