I have had escrow explained to me three times just now by three different people and I still don’t quite get it.
In: Economics
Imagine I’m trying to buy a house. I want to give someone a bunch of money, and a little later they will sign a deed over to me. We’re both probably generally trustworthy, but these are really big purchases.
So we hire a third person, Ms Escrow. She’s a professional money holder and there’s a ton of laws about what she can and can’t do with money.
Instead of me giving the seller the money and hope they sign over a deed, I give the money to Ms Escrow. The seller checked with Ms. Escrow to make sure she’s got the money, and then signs the deed. When Ms Escrow verifies that the deed has been signed over, she gives the money to the seller.
Only there’s actually more people. I don’t actually have enough money, so I’m going to borrow from my bank. The seller still owes money on the house, and their bank will only allow the sale if they get the money that’s owed to them. And the realtor also needs some money. Luckily, Ms Escrow is smart and can deal with all of these extra people and their needs.
So my bank and me together give Ms Escrow a bunch of money; the seller signs the deed, and Ms Escrow releases money to the seller’s bank, the realtor and whatever is left goes to the seller. And then Ms Escrow writes up a detailed list of exactly what money came from where, to who, and how much.
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