What is escrow and how does it work? When you’re buying a property, you’re exchanging a considerable amount of money for it and the eventual transfer has to go through multiple steps not only to ensure both parties are dealing fairly (remember the old joke about selling the Brooklyn Bridge?) but that all the proper documentation is accounted for and eventually recorded with the county.

What I’ve found in all the transactions I’ve been a part of is that people aren’t dishonest so much as they are operating off different presumptions about what the other party wants. As a very simple example, take the final state of the home when it’s turned over. It’s very unlikely that the seller will refuse to turn over the house or, worse yet, sign the closing documents and then refuse to leave becoming a squatter (although this does happen), but they may leave a bunch of junk behind or they may have damaged a wall while moving out. This is why it’s important to have a re-inspection or final walk through just before closing. If there’s significant junk lying around or damage, this is where escrow becomes very important. They will hold back the money until the situation is remedied. Furthermore, when a lender is involved, they will be sending their portion of the funds directly to escrow. Finally, when everything has been completed, the escrow or title officer will have the sale recorded with the county recorder’s office. On the seller side, the escrow officer will also be the one to pay off your loan if there is one.

Here’s a handy breakdown of who does what and when from our friends at First American Title.