Escrow or an escrow agent is a middle man for two parties in a large transaction. They hold money until all conditions are met.
A buyer will first hear of escrow when they make an offer and send their earnest money deposit. Earnest money deposit (EMD) is money to show the seller that you are serious. EMD is given to a neutral, third-party and is considered in escrow. A third-party is necessary just in case the contract falls through, they make sure it ends fairly in any situation; you don't want the contract to fall through because of the seller, and them keep the money.
- If the buyer backs out of the home purchase and conditions of contract are not met, the seller will receive the EMD that the buyer deposited.
- If the seller backs out of the home purchase under conditions are not met or if something is wrong on the property that had not been disclosed, the buyer will receive the EMD back.
- When the home sale is complete, the seller receives the EMD.
Escrow means that there is money put down, but not everything is finalized; this is a very fragile time. Just because you are in escrow doesn't mean that the sale will finalize; it can go either way.