What Is Escrow?
After contract, escrow is the process to ensure that all the necessary conditions and obligations are met so the transaction can proceed smoothly.
It is designed to protect all the parties involved in a real estate transaction from risk and to ensure that everyone is acting in good faith. The seller will need to prove that he or she owns the house and that it’s not subject to any liens from third parties that could prevent or complicate the sale. The buyer will need to prove that he or she has the funds necessary to buy the house or the financial means to obtain a mortgage. The law related to the escrow process varies by state, but in general an escrow agent, who is a neutral third party with no vested interest in the transaction, is assigned to handle the process and to protect each involved party from risk. The escrow agent is paid a fee that represents a small percentage of the sale price. This fee can be paid by the buyer, the seller or both. Earnest money is a small percentage of the sale price that the buyer provides to demonstrate that he or she is serious about buying the house. In exchange, the seller takes the house off the market. At closing, the earnest money is applied toward the buyer's fees or down payment. Courtesy Rismedia (with edits).