Keeping it all together - Escrow Explained


Playground transactions are fraught with peril. “Give me that candy bar and THEN I’ll give you my Howie Kendrick Baseball card.”  The unsuspecting kid reaches his hand out with the candy bar exposed and SWIPE, the candy bar is taken and the Howie Kendrick card never even appeared. 

Now this story enters mediation with a frustrated recess monitor... 

If only there had been a structured process for the exchange that would have protected the trusting child.  To find out how an escrow could have saved little Johnny’s Twix bar, keep reading.

Escrow generally refers to money held by a third-party on behalf of transacting parties.  An escrow company as it relates to real estate is a third party that oversees a purchase and sale transaction. 

Generally, the escrow officer, who is in charge of overseeing the transaction, works with the lender to satisfy lending conditions and to receive the buyer's down payment and loan funds from the bank. 

Once the funds are received, the buyer is asked to review and verify the condition of the property is adequate.  After making sure all of the terms in the contract have been satisfied, the purchase of the property is recorded at the County Recorder’s office, making the sale official and then the proceeds are transferred to the seller. 


Escrow officers need to be quite detailed as they must determine down to the penny how proceeds are to be disbursed. 

An example of the importance of an escrow officer:

The seller of a property paid all of their property taxes for the year, but the sale is going to close on October 16th

The escrow officer must calculate how much taxes are for each day, compute the number of days left in the year and then credit the seller for the days that the buyer should pay for (From October 16th- December 31st).

Escrow officers are neutral third parties and in California are regulated by the California Department of Business Oversight. 

They are required to be licensed and bonded and can be completely trusted as they are backed up by the state government.  Usually in a real estate transaction, the seller selects the escrow company, although this term is negotiable.