What Is an Escrow Account in Real Estate?
An escrow account is a neutral, third-party account used to hold money safely during a real estate transaction or throughout the life of a mortgage. It ensures funds for taxes, insurance, or closing costs are distributed properly and on time.
🏦 How an Escrow Account Works
In a home purchase, the escrow account is managed by an impartial party—often a title company or escrow agent—who holds earnest money until all contract terms are met. At closing, the funds are released to the appropriate parties.
After closing, many mortgage lenders establish an ongoing escrow account to collect monthly portions of property taxes and homeowners insurance. The lender pays these bills on behalf of the homeowner when due, ensuring there are no missed payments.
📅 When Escrow Accounts Are Used
- During purchase: To hold earnest money until closing.
- For mortgages: To store funds for taxes and insurance premiums.
- In new construction: To manage draw payments to builders.
✅ Why Escrow Accounts Matter
Escrow accounts create transparency, reduce risk, and guarantee both buyers and sellers meet their obligations. They also simplify budgeting for homeowners by spreading tax and insurance costs throughout the year.
🏡 Escrow Accounts and FSBO Sellers
For for sale by owner (FSBO) sellers, escrow accounts provide a secure way to handle earnest money and closing funds. Listing through Brokerless.com ensures your transaction stays professional, compliant, and protected without paying a 6% commission.