Professional escrow services are provided by companies who work with property owners, buyers, real estate brokers, insurance agents, notaries, title insurance agents, and attorneys. They provide escrow management for the funds of these various parties.

When a buyer pays an earnest money deposit, the escrow company will hold it until the sale closes—at which point the money is distributed to the seller.

If the property owner has an outstanding mortgage on the real estate, the escrow agent will pay off the lender with the sale proceeds at closing.

They will set up the escrow with the mortgage company for the collection and distribution of property taxes and insurance—as well as make sure the initial insurance premium is paid.

They will arrange for collecting and paying real estate commissions, the money due to the county collector’s office, attorney fees, and any other miscellaneous expenses.

One of the essential services an independent escrow agent can provide is the management of a loan for commercial or residential construction. The project owner or manager will submit the various contractors’ and vendors’ invoices. The agent will make sure the vendors are paid, and collect lien waivers where necessary.

The confusion between title and escrow companies arises from the fact that a title company can additionally offer the services of an affiliate escrow company. But in fact, title companies and escrow companies are normally different entities.

An escrow company cannot provide title insurance. They do not have anything to do with the title search or the issuance of title insurance. Instead, they attend to the many details involved in opening, maintaining, and closing a real estate transaction.

Escrow companies get paid by charging a fee based on the purchase price of the real estate, and the number of services provided. For example, if the escrow company is handling the management of a construction loan, their fees will be considerably higher.

Escrow agent fees for a simple real estate transaction are usually between 1% and 2% of the sale price of the home. Escrow services cost considerably more when the escrow agent is managing a construction loan. As an example, for managing a $300,000 construction loan, an escrow agent might charge anywhere from $1,000 to $2,000.

The record-keeping requirements for escrow companies vary by state. In Illinois, for example, the original records and a backup must be kept in the office of the escrow agent for 60 days. Subsequently, escrow records must be kept for a total of five years. Records under two years old must be held onsite at the escrow office. Those records, two years and older, can be stored offsite.

Escrow companies are licensed and regulated on a state-by-state basis. For example, in California they are regulated by the California Corporations Commissioner, in Idaho by Idaho Department of Finance, in Washington by Division of Consumer Services, etc.

Escrow companies need to operate when banks, county offices, and other institutions are open. So typically, escrow companies are not open on Saturday.

A non independent broker escrow firm does not have the same licensing requirements as those of a title company with escrow services or an independent escrow company. The lack of licensing allows a real estate broker to start a non independent broker escrow firm by merely opening up an escrow trust account with a bank.

This type of escrow firm is risky for the client, because it is not regulated. For example, if the escrow officer makes a mistake and wires the seller’s money to a fraudulent account, the seller has no recourse other than trying to collect the money from the non independent broker escrow firm. And if the firm doesn’t have the financial strength to fix the mistake, the seller may not be able to recoup their losses.

Earnest money is a dollar amount that a buyer puts into an escrow account after a seller accepts their offer. Earnest money is also known as a ‘good faith deposit,’ which will compensate the seller if the buyer breaches the contract and does not complete the real estate transaction.

An escrow is an account set up to hold funds on behalf of a contract rather than a person. In other words, the escrow is strictly faithful to the contract stipulations, making sure that every requirement is followed before allowing the deal to proceed.

A trust, however, is about taking care of assets for the benefit of its beneficiary above all else.

An escrow company is an independent party from both the buyer and the seller. The trustee, however, retains the funds in the trust on behalf of the beneficiary.

For example, in a complicated real estate transaction, attorneys might be retained by the buyer and the seller. If both parties are paying for attorney services through a trust, the funds to pay any attorneys should be held in separate trusts for both buyer and seller.