# What Does Escrow (in Escrow) Mean, and How Does It Work?

> **Definition**
>
> "In escrow" is a contractual arrangement for money or property to be held by a third party until conditions are met for its transfer between a buyer and seller.

## What Is 'In Escrow'?

In financial transactions, the term "in escrow" indicates an item, such as money or property, is being held by a [third party](https://www.investopedia.com/terms/t/third-party.asp) until legal conditions have been met to transfer it. This transfer is usually done on behalf of a buyer and seller.

Typically, items are held in [escrow](https://www.investopedia.com/terms/e/escrow.asp) until the process involving a financial transaction has been completed. Valuables held in escrow can include [real estate](https://www.investopedia.com/terms/r/realestate.asp), money, stocks, and securities.

### Key Takeaways

*   Funds or assets held in escrow are temporarily transferred to and held by a third party, usually on behalf of a buyer and seller to facilitate a transaction.
*   "In escrow" is often used in real estate transactions when property, cash, and the property's title are held in escrow until predetermined conditions are met.
*   Escrow is often associated with real estate transactions, but it can apply to any situation in which funds will pass from one party to another.
*   Items held in escrow can include valuables, real property, money, stocks, and other securities.

![Escrow: An agreement for money or property to be held by a third party until a particular condition is met.](https://www.investopedia.com/thmb/Ut3DdgzCTzFkMq-V8xwa0uSAm0M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/in-escrow.asp-final-a2b9153ff2714f8590804a80f64868e7.png)

*— Investopedia / Julie Bang*

## Understanding 'In Escrow'

Escrowed items are most commonly found in real estate transactions. The property, cash, and the title to the property are often held in escrow until all specified conditions, outlined in the [escrow agreement](https://www.investopedia.com/terms/e/escrowagreement.asp), are met, and transfer of ownership can occur.

An escrow agreement outlines the conditions and terms between the parties involved in the transaction as well as the responsibilities of each of the parties. Items placed in escrow are managed by a trustee called an escrow agent.

The [escrow agent](https://www.investopedia.com/terms/e/escrow_agent.asp), which is typically a lawyer, holds the assets until predetermined contractual obligations are fulfilled. Once the agreement terms have been satisfied, the escrow agent releases the funds or property held in escrow to the appropriate party.

## Real Estate In Escrow

While the property is held in escrow, the buyer can't take possession of or occupy the space. Real estate deals must clear a series of stages during the escrow process.

Escrow can also refer to an escrow account that is set up at the time of [mortgage closing](https://www.investopedia.com/mortgage/mortgage-guide/closing-costs/). In this case, the escrow account contains future homeowners insurance and [property tax](https://www.investopedia.com/how-to-pay-your-property-tax-bill-4783420) payments, held separately from monthly principal and interest payments being made by the mortgage holder. The escrow account usually remains for the life of the mortgage.

Below are some of the typical conditions that might need to be met and reasons why assets might be held in escrow.

### Appraisal

An [appraisal](https://www.investopedia.com/terms/a/appraisal.asp) of the property must be conducted before its sale. Issues could arise if the appraised value of the property is lower than the agreed-upon purchase price.

Banks won't lend money for the amount of a property if the asking price is above the appraised value. The buyer could try to find funding to cover the missing portion of the agreed purchase price for the property or ask the seller to lower the price.

> **Warning**
>
> If the buyer can't fund the difference between a property's appraised value and an asking price that exceeds that value while the real estate is in escrow, the transaction could be terminated.

### Home Inspection

A buyer might agree to purchase a property with the condition that the home passes a [home inspection](https://www.investopedia.com/terms/h/home-inspection.asp). The funds for the purchase would be held in escrow until the inspection has been completed. Once the conditions of the offer are satisfied, the buyer or seller will then be obligated to purchase or sell the property.

### Financing and Insurance

The real estate transaction could be held in escrow such that the sale wouldn't be completed until the buyer obtains financing or a mortgage from a bank. Also, the buyer could have difficulty securing the necessary [insurance](https://www.investopedia.com/homeowners-insurance-vs-mortgage-insurance-5221665) and other policies needed to complete the transaction. If the buyer doesn't get approved for the mortgage or obtain the required insurance, the escrow agent would nullify the offer to buy.

### Title Search

Before purchasing a home, a [title search](https://www.investopedia.com/terms/t/titlesearch.asp) is performed, which is a process of checking public records to determine the ownership of the property. The title search helps determine if there are any liens and other claims attached to the property. An outstanding [lien](https://www.investopedia.com/terms/l/lien.asp) means that the property was used to guarantee the repayment of a loan. A property can be held in escrow while the title search is being conducted or resolved.

> **Important**
>
> A clear title—meaning there are no liens against the property—is required for any real estate transaction to go through properly.

### Zoning

The buyer may have wanted the property for a use that doesn't match current [zoning](https://www.investopedia.com/terms/z/zoning.asp) regulations. The seller might seek a variance while the property is in escrow to allow the buyer to proceed with their intended plans upon taking full ownership of the real estate.

### Repairs

The purchase might have included guarantees that the seller would address needed repairs to the property. This could include the removal of landscape features such as trees or the reconstruction of part of a building. If the seller doesn't make good on those promises while the property is in escrow, then the deal might fall through.

## Releasing 'In Escrow' Funds

The funds in a real estate transaction can be held in escrow even on the date of the sale and won't be released until all parties—the buyer, seller, and the mortgage company—agree that all the conditions in the escrow agreement have been satisfied.

The purpose of keeping the property in escrow is to assure all parties that the [mutual responsibilities outlined in the escrow agreement](https://www.investopedia.com/mortgage/escrow-process-requirements/) will be fulfilled.

## Why Would Funds or Property Be Held 'In Escrow'?

Funds or assets held in escrow are temporarily moved to and held by a third party, usually on behalf of a buyer and seller to finalize a transaction. The procedure of putting something in escrow is often used in real estate transactions, for example when property, cash, and the property's title are held in escrow until predetermined conditions are met.

## What Kinds of Items Can Be Put In Escrow?

Valuable assets such as property, cash, stocks, jewelry or collectibles, and securities are typical items that are held in escrow during their sale from a seller to a new buyer.

## How Long Can Money or Other Items Be Held In Escrow in a Real Estate Transaction?

In most real estate transactions, the period that an escrow account can hold funds is 30 to 60 days. That duration allows both parties time to fulfill their obligations, including inspections, appraisals, and financing approvals. But be aware that this timeline can vary depending on many factors that are part of a transaction. 

## The Bottom Line

Items put in escrow are most often part of real estate transactions. The property, cash, and the title to the property are routinely held in escrow until all conditions outlined in the escrow agreement are met, and transfer of ownership can happen. An escrow agreement outlines the conditions and terms agreed to by the parties involved in the transaction along with the responsibilities of each. Items placed in escrow, ranging from valuables such as cash to property to securities, are managed by a third-party trustee called an escrow agent.

> **Article Sources**
>
> 1.  Council of the District of Columbia. "[Code of the District of Columbia Section 42-1704. Escrow Accounts](https://code.dccouncil.gov/us/dc/council/code/sections/42-1704)."
>     
> 2.  Cornell Law School - Legal Information Institute. "[Escrow Agent](https://www.law.cornell.edu/wex/escrow_agent)."
>     
> 3.  Consumer Financial Protection Bureau. "[What Is an Escrow or Impound Account](https://www.consumerfinance.gov/ask-cfpb/what-is-an-escrow-or-impound-account-en-140/)?"
>     
> 4.  Federal Deposit Insurance Corp. "[Understanding Appraisals and Why They Matter](https://www.fdic.gov/consumer-resource-center/2023-06/understanding-appraisals-and-why-they-matter)."
>     
> 5.  Bay Area Escrow Services. "[How Long Can Escrow Hold Funds: Unveiling the Timelines](https://www.bayareaescrow.com/how-long-can-escrow-hold-funds/#:~:text=real%20estate%20transactions.-,The%20Standard%20Duration,%2C%20appraisals%2C%20and%20financing%20approvals.)."