By Bruce Cathcart

The buyers have found the perfect house and the sellers have accepted the perfect offer and the love fest is about to begin… it is time to “open escrow”! Unlike buying a used car where you meet the seller face to face, drive the vehicle around the block, look under the hood and act like you actually know what you are looking at, kick the tires and hand your money over to the owner in exchange for the pink slip, buying a home and consummating the sale is a much lengthier and more complicated process. To help buyers, sellers, and their agents with the coordination of their transaction an escrow company with a specific escrow officer is hired to do the job. The opening of escrow then is the act of hiring an escrow company and opening an escrow account into which the buyer’s good faith deposit is placed and specific instructions are given to the escrow officer (“escrow instructions”). So far, so good, but do we really need an escrow company, escrow officer, and an escrow account? YES!

If it wasn’t for the buyers getting a loan, the need for a preliminary title report and title insurance, the seller’s disclosures, the buyers inspections, termite reports, natural hazard and environmental disclosures, preliminary change of ownership forms, tax forms and much more, technically the buyer could just hand the seller a suitcase full of cash and the seller could just hand the buyer the deed to the home. But even that poses a bit of a problem as Indiana Jones discovered when he found himself at the bottom of a pit pleading, “throw me the rope and I will throw you the idol”. In the case of a real estate transaction it goes, “give me the money and I’ll give you the deed, no give me the deed and THEN I’ll give you the money!” This is where a neutral third party comes in. This is where the escrow company comes in. The buyer (and their lender if the buyer is getting a loan to purchase the home) put the money into escrow and the seller puts the signed deed into escrow. After all of the conditions of the escrow have been met, the escrow company then records the deed through the title company with the county recorder’s office. The escrow officer then distributes the funds to the seller after paying off any existing loans and all of the transaction’s closing costs. Escrow not only coordinates all of the paperwork and different participants in the transaction, but they do all of the accounting as well issuing the buyers, sellers, and agents a final accounting called a “closing statement” at the end of each transaction.

So how does the escrow officer know what to do? Each transaction is different and so each escrow will have its own set of escrow instructions. A few years ago as soon as I had a purchase contract signed by both the buyer and seller I would take the buyer’s good faith deposit check and a copy of the contract to the escrow company and open escrow. The escrow officer would take all of the information from the purchase contract and create the escrow instructions that basically said exactly the same thing that was on the contract. Today the standard CAR (California Association of Realtors) purchase contract form is titled “Residential Purchase Agreement and Escrow Instructions” combining the contract and escrow instructions into one document. When using this form to open escrow, the escrow companies will usually add a set of supplemental instructions designed specifically for their company, but basically reiterating in the form of instructions to themselves what the buyer and seller have agreed to in their contract.


Who pays the escrow company for their services? Rodney Dangerfield in the movie Caddy Shack slipped the golf referee a wad of cash and said “keep it fair!” Well to keep it fair and to keep a third party neutral it is customary for the buyer and seller to split the fees 50/50 or as we use on the contracts today, “each to pay their own fees”.

Escrow companies play an integral role in today’s transactions and their fees are well earned. Buyers and sellers should get to know their escrow officer and feel comfortable asking for help or any questions that they may have regarding their transactions.

This week’s real estate tip: Selecting the escrow company for your transaction is a negotiable item in your contract. Your agent will recommend an escrow company, but it is up to you to approve the selection.

Bruce Cathcart is the Broker/Co-Owner of La Quinta Palms Realty, “Your Friendly Professionals” and can be reached by email at or visit his website at