What is Escrow & Why Does It Matter in a Washington State Real Estate Transaction?

If you’re buying or selling a home in Washington State, you’ll hear the term escrow a lot, but what does it actually mean?

Escrow: Your Neutral Third Party in a Real Estate Transaction

Escrow is like a safety net in real estate. It’s a neutral account managed by a licensed escrow company or title company, where important funds and documents are held until all conditions of the sale are met.

How Does Escrow Work?

For Buyers: Your earnest money deposit (a good faith deposit to show you’re serious about buying) is held in escrow until closing. The escrow company ensures the funds aren’t released until everything is in order.

For Sellers: The home’s title and other legal documents are securely handled to ensure a smooth transfer of ownership.

For Lenders: Escrow manages loan payoffs, collects closing costs, and ensures funds go to the right parties.

Why Escrow is Important in Washington State

Protects Both Buyers & Sellers – Funds aren’t released until all contract terms are met, ensuring a fair transaction.

Handles Closing Details – Escrow ensures all documents are properly signed, notarized, and recorded.

Securely Transfers Ownership – Once everything is completed, the escrow company distributes funds and officially transfers the home to the buyer.

Who Chooses the Escrow Company in Washington State?

The selection of an escrow company is typically a negotiation between the buyer and seller. While either party can propose a preferred escrow provider, the final decision is often influenced by local customs and the specifics of the transaction.

It’s important to note that under the Real Estate Settlement Procedures Act (RESPA), a seller cannot require a buyer to use a specific title company as a condition of sale. This protects buyers, ensuring they have the freedom to choose their service providers while promoting fair competition in the marketplace.

Escrow might seem like just another step in the process, but it plays a huge role in protecting your investment and ensuring a seamless closing experience.

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