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What Is An Escrow Agent?

3-Minute Read
Published on June 30, 2020
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Throughout the home buying process, there may be, at times, the need for a trusted and neutral third party to handle money while you complete certain transactions.

Enter the escrow agent.

An escrow agent safeguards money or assets and enforces escrow agreements in financial transactions, particularly those involving real estate. An escrow agent has a fiduciary duty to both parties involved in the transaction and can only act in accordance with the terms of the agreement.

What Is The Role Of An Escrow Agent In Real Estate Sales?

From the time a seller accepts an offer to the time of closing, the escrow agent is involved in the real estate transaction.

Once you sign a purchase agreement with the seller, you pay an earnest money deposit, which shows the seller you’re serious about purchasing the home. The agent ensures the payment is accurate, then places this deposit, along with the title and other paperwork, into an escrow account, where it will be held by the agent or escrow company until both parties fulfill their contractual obligations of the sale, like getting the home appraised and securing financing.

When the buyer and seller agree that all sale terms have been met, they close on the home. Upon closing, the escrow agent will create a new deed, listing the buyer as the new owner of the home. They’ll also close the escrow per the instructions, which may include releasing the earnest money deposit back to the home buyer, who can use it towards their down payment or closing costs.

Usually, an attorney or title company may complete part or all of the escrow process as the escrow agent.

Should I Trust An Escrow Agent?

It can be hard to put a large amount of money in the hands of a third party. But it’s the best way to ensure that money goes to the right person if and when the contract is fulfilled or terminated.

Escrow agents are bound by a fiduciary duty – not just the highest obligation created in law but their own ethical obligation as well – to act in the best interests of both parties and make sure the terms of the agreement are fulfilled.

They must disclose information to both parties and to the lender involved and must follow the instructions of the escrow contract explicitly. This is taken very seriously. In fact, agents who breach this fiduciary responsibility can be held liable for any loss, have their certification revoked and could face civil legal consequences.

For even more peace of mind, you can ask for copies or receipts of every transaction and deposit into the escrow account.

Is There A Difference Between A Trustee and An Agent?

People often use the terms escrow agent and trustee interchangeably, but, while they do have similarities, they aren’t the same thing. Both escrow agent and trustee hold money or other assets in an account or trust until they’re instructed to disperse them.

However, the difference comes in with the fiduciary responsibility each has. While an escrow agent has the duty to act in the best interest of both parties, a trustee must act in the best interest of the beneficiary, exclusively.

There’s also another difference – their use. Typically, escrow is used to hold assets until the terms of a contract have been met by both parties. In real estate, that’s the buyer and the seller. In a trust, assets are usually held until one of two things happens:

  • Until a certain event occurs (for example, a death, marriage or certain birthday); or
  • Until services are completed in the future.

Summary: Escrow Agents Facilitate Real Estate Transactions

When it comes to real estate transactions, there can be a great deal of money being passed from one party to another. To help avoid risk and ensure all responsibilities of the sale are met, a third party handles the transaction and keeps the money safe through the process, working in a neutral position, in the interest of both the buyer and seller. This party is known as an escrow agent. To learn more about the process of buying a home and other information pertaining to buying or selling, visit our Learning Center.

When it comes to real estate transactions and different steps in the process, it may be helpful to consult your attorney for more information and direction on how to proceed.

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