Here’s What Your Real Estate Agent Means When They Say “We’re In Escrow”

If you’ve ever been involved in a real estate transaction – or just watched a few episodes of a homebuying show – you’ve probably heard someone say, “We’re in escrow.” But what does that actually mean?

In real estate, “in escrow” refers to a specific phase of the homebuying process when a neutral third party temporarily holds important funds and documents while the buyer and seller work toward finalizing the sale. It’s not just a technicality – it’s one of the most important and complex parts of the transaction.

In this Redfin article, we’ll take a closer look at what being “in escrow” really means, how it works, and what to expect during this pivotal stage.

What does it mean to be in escrow?

When a home is in escrow, it means the buyer and seller have signed a purchase agreement, and an escrow account has been opened to securely hold the buyer’s earnest money deposit. At this stage, the transaction has officially entered the closing process. 

The escrow account holds the deposit along with important documents like the purchase contract, loan paperwork, and the deed. A neutral third party – usually an escrow officer from a title or escrow company – manages these funds and documents to ensure all terms of the contract are met before any money or ownership changes hands.

In simple terms, if your agent says “we’re in escrow,” it means the transaction is formal and underway, with funds and paperwork safely held while both buyers and sellers complete their responsibilities, such as inspections, appraisals, and final loan approvals. Once everything is in order, the sale moves toward closing and ownership is transferred.

When does escrow start?

In most transactions, escrow officially “begins” as soon as the buyer and seller sign the purchase agreement and the buyer submits their earnest money deposit – typically 1–3% of the purchase price – to the escrow company. The escrow officer then opens a file and starts coordinating with everyone involved: the buyer, seller, agents, lender, and title company. This kicks off the countdown for key deadlines like inspections, loan approvals, and closing.

Typically, the escrow process takes between 30 and 45 days, depending on the contract terms and how quickly all parties fulfill their obligations.

What happens once you’re in escrow?

Once you’re in escrow, the behind-the-scenes work kicks into high gear. While many think of escrow as simply holding funds, it’s also a critical period of due diligence and coordination.

The escrow company takes the lead in managing timelines, documents, and communication, while the buyer and seller work through their respective responsibilities. Here’s how the escrow period typically unfolds:

1. Contingency period begins

Once escrow opens, the buyer enters what’s known as the contingency period – a window of time (usually 7 to 21 days, depending on the contract) when they can fully investigate the property and ensure everything checks out before committing to the purchase.

During this time:

• The buyer schedules a general home inspection and may order specialty inspections (roof, pest, sewer, etc.).
• The seller provides all required disclosures about the home’s condition, past repairs, and known issues.
• If serious issues come up, the buyer can request repairs, renegotiate terms, or even cancel the deal without penalty, as long as they’re within their contingency timeframe. 

The escrow officer tracks these deadlines to make sure contingencies are removed or addressed before moving forward.

2. Appraisal and loan approval 

If the buyer is financing, the lender orders an independent appraisal to confirm the home’s value supports the agreed-upon loan amount. If the home appraises lower than expected, the buyer and seller may need to renegotiate, or the buyer might need to come up with the difference in cash.

Meanwhile, the buyer’s lender is reviewing the borrower’s financials and the property details as part of the underwriting process. They’ll use the appraisal, title report, and other documentation to ensure the home qualifies for financing and that the buyer has the means to repay the loan. Once everything checks out, the lender issues final loan approval and prepares the loan documents for signing.

3. Title review and escrow coordination

While the buyer is completing inspections and securing financing, the escrow and title teams are doing their own work:

• A title search is conducted to confirm the seller has clear ownership and that there are no liens, unpaid taxes, or legal claims against the property. If any issues arise, they must be resolved before closing.
• The escrow officer manages and distributes documents, coordinates with lenders, tracks contingency removals, and ensures compliance with all legal and contractual requirements.

4. Final walk-through

A day or two before closing, the buyer will conduct a final walkthrough of the property. This isn’t another inspection – it’s simply to confirm that the home is in the expected condition, that any agreed-upon repairs have been completed, and that nothing has changed since the last visit.

5. Closing and transfer of ownership

Once all contingencies are cleared and everything is in order:

• The buyer wires their down payment and closing funds to escrow
• The lender sends loan funds
• The seller signs the grant deed transferring ownership
• Escrow prepares documents for recording with the county
  

When the deed is officially recorded, escrow closes. The buyer gets the keys, the seller gets paid, and the transaction is complete.

Under contract vs. in escrow: What’s the difference? 

Under contract means the buyer and seller have agreed on terms and signed a purchase agreement, but the transaction hasn’t necessarily moved into the formal closing process yet.

In escrow means the deal has officially entered the next phase: a neutral third party now holds the buyer’s funds and key documents, managing the process while both sides complete inspections, financing, and other closing steps. 

Essentially, all sales that are “in escrow” are under contract, but not all “under contract” deals have yet opened escrow.

FAQs: What does it mean to be in escrow?

What is the purpose of escrow in the homebuying process? 

Escrow protects both the buyer and seller by ensuring that no money or property changes hands until all terms of the purchase agreement are met. It provides a neutral third party to manage funds, documents, and deadlines, helping the transaction proceed smoothly and fairly.

Is it good to be in escrow? 

Yes – being in escrow is a positive and necessary step in the homebuying process. It means your offer has been accepted, and the transaction is moving forward with protections in place for both buyer and seller. While it involves important deadlines and inspections, escrow helps ensure the sale proceeds smoothly and fairly toward closing.

Is escrow required?

In most real estate transactions, especially those involving a mortgage, yes, escrow is required. Lenders typically mandate it to protect their investment. While all‑cash buyers may sometimes bypass a formal escrow account, most still use either escrow or an attorney to ensure the sale is handled securely.

How long does escrow take?

Typically, escrow takes 30 to 45 days, but the timeline can vary depending on the loan process, inspection findings, and how quickly contingencies are resolved. In competitive markets or with all-cash buyers, escrow can sometimes close faster, within 15 to 20 days.

What’s typically held in escrow?

Escrow typically holds the buyer’s earnest money, the signed purchase agreement, loan documents, the property deed, and instructions from both parties. These items are held by a neutral third party until all terms of the sale are met and the transaction is ready to close.

When does escrow close?

Escrow closes when all contract conditions are met, funds have been transferred, and the deed is recorded with the county, officially transferring ownership to the buyer.

Can a buyer or seller back out during escrow?

Yes, but only under certain conditions. If contingencies allow, a buyer or seller can legally withdraw. Backing out without valid reasons may result in financial penalties or legal consequences.

Who chooses the escrow company?

The escrow company is typically chosen by mutual agreement between the buyer and seller, though in some markets, it’s customary for one party (often the buyer or their agent) to make the selection.

Can escrow fall through?

Yes, while many transactions close smoothly, escrow can fall through if:

• The buyer fails to secure financing.
• The appraisal comes in low, and the buyer and seller can’t agree on a new price.
• There are issues with the home inspection.
• Problems arise during title review.
  

If the deal falls apart for a reason covered by a contingency, the buyer usually gets their earnest money back. If not, they risk losing that deposit.

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