What is Escrow on a House in California?

You are considering an offer on your dream house but don’t really know what the whole "escrow" thing is about. Well you’ve come to the right place!

Escrow agents play a very important role as disinterested third parties in real estate transactions and help minimize risk for all parties involved. Escrow agents follow specific escrow instructions to make sure there is a fair and orderly settling of the transaction. 

Once your offer is accepted and you’ve signed a purchase agreement, you are not too far away from going "into escrow". Escrow companies help facilitate the movement of money, payment of transfer taxes, preparation of documents, accounting for funds, processing the transaction, closing of the transaction, and so on and so forth. 

The purchase or sale of a property is many times the largest financial decision in one’s life and shouldn’t be taken lightly. Escrow is essentially the process and rules around transferring real estate or real property. Escrow agents act much like clearinghouses work for financial securities, once all the necessary tasks are completed, escrow closes and the seller receives the proceeds and the buyer is delivered title of the property. 

How long does escrow last?

Escrow is closed after all of the conditions of the escrow have been met. Escrow can also be cancelled when there is mutual agreement or default. In order for an escrow to be canceled, the cancellation instructions must be met. 

After an offer is accepted and a purchase agreement is signed, escrow is opened. Escrow is usually open for roughly 30-60 days before the transaction closes. 

How much are escrow fees and who pays them? 

In California, both the buyer and the seller pay the escrow agent for their work. Typically each side will be charged the same amount (but some geographies are slightly different). 

Escrow fees are not fixed or determined by the state of California. Generally, escrow agent fees in California are roughly 0.20% or $2 per $1000 of the property price plus $250 (for both the buyer and the seller). So the total for a million dollar property could be $4,500 or $2,250 per side.  

Who picks the escrow company in California?

Usually the seller or the listing agent pick the escrow company. The escrow agent must be agreed upon by the principals of the transaction, the buyers and the sellers, but in practice the seller customarily dictates. 

Who is typically involved in the escrow process?

Typically it is the buyer(s), seller(s), existing lender, new lender, and title company. 

Does escrow mean different things in different states? 

Yes! In certain states other than California, attorneys or title companies handle real estate closings and escrow agents are not used. 

In addition, the word escrow is also commonly used when discussing the ongoing payment of property taxes as part of your monthly mortgage payments. Banks in many states will ask a buyer if they want to "escrow" their property taxes in their monthly mortgage payment. 

This means the mortgage lender is paying the property taxes directly to the municipality and prevents property taxes from not being paid on time and a lien being placed on the property.  

Prevu Real Estate, Inc. is a licensed real estate broker in California, license number 02134758.