<h2What Is Escrow?</h2<pEscrow is a neutral third-party arrangement in which funds and documents are held until all conditions of the sale are met.
In a real estate transaction, escrow serves as the financial and legal holding mechanism that protects both the buyer and the seller from the time the contract is signed until the deed is recorded at closing.</p<h2Who Holds Escrow?</h2<pIn most states, escrow is held by the title company handling the closing.
In some states — particularly on the West Coast — escrow companies operate separately from title companies.
In others, a real estate attorney handles both functions.
As a FSBO seller, your title company will typically manage the escrow process as part of their closing services.</p<h2The Earnest Money Deposit</h2<pWhen a buyer makes an offer, they typically submit an earnest money deposit — usually 1–3% of the purchase price — to demonstrate their seriousness.
This money is held in escrow by the title company (or sometimes by the buyer's agent's brokerage) until closing.
At closing, it is applied toward the buyer's down payment or closing costs.</p<pThe earnest money protects you as the seller.
If the buyer backs out of the contract without a valid contingency, you may be entitled to keep the earnest money as liquidated damages.
The specific rules vary by state and contract terms, so review your purchase agreement carefully.</p<h2Contingency Periods and Escrow</h2<pDuring the contingency period — typically 10–21 days after contract signing — the buyer has the right to conduct inspections, obtain financing approval, and review any disclosures.
If the buyer exercises a valid contingency and cancels the contract, the earnest money is returned to them.
Once all contingencies are waived or expire, the earnest money becomes non-refundable (except in cases of seller default).</p<h2What Happens If the Deal Falls Through?</h2<pIf the transaction does not close, the disposition of the earnest money depends on why it fell through.
If the buyer cancels due to a valid contingency (failed inspection, financing denial), the earnest money is returned to the buyer.
If the buyer cancels without a valid reason after contingencies are removed, you may be entitled to the earnest money.
If you as the seller default, the buyer is typically entitled to a refund plus potentially additional damages.</p<pDisputes over earnest money are resolved according to the contract terms and, if necessary, through mediation or legal action.
This is another reason why having a real estate attorney review your contract is valuable.</p<h2Conclusion</h2<pEscrow is a straightforward but important part of the home sale process.
Understanding how it works helps you protect your interests, evaluate the strength of offers, and navigate the transaction with confidence.
Your title company will handle the mechanics — your job is to understand the rules.</p