"What Is Escrow, Anyway?": Explaining Real Estate Escrow In Texas

What is escrow?
You've probably heard the word "escrow" many times before, especially in the real estate market, but a lot of people don't understand what the term actually means. We're going to walk through the basics of escrow so the next time you say, "let's not rush the escrow process", you'll know what you're talking about.

Escrow is essentially a deposit of funds that is safe-held by a third-party to ensure that all the terms are met before money is exchanged. It ensures that all the terms of the sale are completed before the purchase is finalized, while guaranteeing that the funds are actually available when needed.

Let's use an example: Evan has bet Matt $20 that he can't run across Congress Avenue Bridge in less than a minute. Matt is prepared to take on the challenge but he doesn't actually know Evan that well, so he wants to make sure he's going to pay up. Matt and Evan agree that their mutual friend Lisa will hold onto the $20 until the bet is settled. Lisa is now the escrow holder and the $20 itself is the escrow.

Real estate works the same way, with the purchase funds being held as escrow until all the terms of the contract are met. This could include upgrades to the house, inspections being passed, removal of tenants and posessions, and any additional conditions that were initially agreed upon. Once all of the terms have been met, the escrow holder then divies up the funds as per the original contract.

Who chooses the escrow holder?
It's up to both parties to decide on a mutually agreed upon escrow holder, which is often referred to as a Title Company here in Austin. The escrow party represents neither the buyer nor the seller, which allows them to conduct the transations for both parties without bias. All escrow holders in Texas are also licensed, ensuring their integrity.

If you have any questions about escrow or other aspects of buying a home in the Austin area, feel free to call us today at (512) 388-3313. We're always happy to help!