What Is Escrow?

Escrow describes a neutral third party, usually a title company, escrow company, or attorney depending on the state, holding money or documents on behalf of both the buyer and seller until the conditions of the contract are met. Neither party can access escrowed funds unilaterally; release happens according to what the purchase agreement and closing instructions say, which protects both sides from the other backing out and simply keeping the money or the signed paperwork.

In a typical wholesale deal, earnest money is the first thing that goes into escrow after the purchase agreement is signed, as a show of good faith from the buyer. At closing, the full purchase funds, loan payoffs, and closing costs all move through escrow as well, with the escrow or closing agent disbursing everything according to the settlement statement once title is confirmed clear and all conditions are satisfied. Some states use attorney closings instead of a dedicated escrow company, but the underlying function, a neutral party holding and releasing funds correctly, is the same idea.

Escrow procedures are set by the title company or closing attorney handling the deal, and they differ by state and sometimes by county, so a wholesaler working multiple markets should not assume one market's escrow process applies everywhere. For a caller, the practical point is that funds moving through escrow are protected by process, not by trust alone, which is worth explaining to a nervous seller who is unsure why their earnest money does not go directly to the buyer or seller before closing.