When you buy or sell a home, the close of escrow is one of the most important steps in the process. It’s the point when the sale is finalized, funds are disbursed, all necessary documents are signed, and the deed is recorded, officially transferring ownership from the seller to the buyer.
While it may sound straightforward, reaching this stage involves multiple deadlines and responsibilities for both parties, as well as coordination with the lender and escrow officer. Understanding how close of escrow works and what to expect ensures a smooth transition from contract to homeownership.
What does “close of escrow” mean?
Escrow is a neutral arrangement in which a third party – often a title company or escrow company – holds money, documents, and possibly other assets until both buyer and seller meet all obligations of the contract.
The close of escrow is the moment when the transaction is officially complete. At this stage, all contractual obligations have been fulfilled, funds are disbursed, the deed is recorded, and the buyer becomes the legal owner of the property. It serves as the final checkpoint between signing the purchase agreement and taking possession of the home.
Escrow closes when:
- The buyer’s lender funds the loan.
- All required payments, including closing costs, are collected and distributed.
- Both buyer and seller have signed all necessary documents.
- The deed is officially recorded with the county or local jurisdiction.
Once escrow closes, or “ends,” the seller receives payment, the buyer becomes the legal owner of the property, and the escrow account tied to the transaction is closed.
Are the close of escrow and the closing date the same?
These terms are often used interchangeably, but close of escrow and closing day don’t always mean the same thing.
- Closing date is the date specified in the purchase agreement when the parties agree to finalize the sale. On this day, buyers and sellers typically sign their closing documents.
- Close of escrow is the legal completion of the process, when funds are disbursed and the deed is recorded.
In many cases, these steps occur on the same day. In others, escrow may close a day or two later, depending on local practices and recording times. For instance, all necessary materials might be exchanged ahead of time before the title transfer, so escrow technically closes before the official closing. In that case, the buyer could receive the title without the seller even needing to attend the final closing.
Some states follow a “wet” closing, where funds are transferred and documents signed at the same time, while “dry” closings allow escrow to close once all requirements are met except for the disbursement of funds. Knowing which type is standard in your state is important, since it affects when the title and funds officially transfer – always check with your agent or escrow officer.
Timeline and process of closing escrow
The escrow process typically lasts 30 to 45 days from the time an offer is accepted to closing escrow. A cash purchase can be much quicker, often closing in as little as one to two weeks.
While timelines vary by state and lender, here’s how the escrow process generally unfolds:
1. Offer accepted and escrow opens
Once the purchase agreement is signed, escrow is officially opened. The buyer deposits earnest money into a neutral escrow account, and the escrow or title company begins preparing necessary documents and coordinating the next steps, such as ordering a title search and outlining the timeline for the transaction.
2. Title search and insurance
The title company verifies that the property has clear ownership and no liens or claims, and prepares title insurance for both the lender and buyer.
3. Loan processing and contingency period
The buyer finalizes their mortgage application while the lender orders an appraisal to confirm the property’s value. The buyer also completes inspections, and any issues discovered, such as necessary repairs, are negotiated. Other contingencies, like financing or the sale of the buyer’s current home, are addressed.
4. Final loan approval and disclosures
The lender issues final approval, often called a “clear to close,” and delivers the Closing Disclosure, which details all costs and the exact cash needed to close. By law, this disclosure must be provided at least three business days before signing.
This step generally signals that the escrow process is entering its final phase, with the transaction fully prepared to move toward closing.
5. Final walkthrough
The buyer inspects the home to confirm it is in the agreed-upon condition and that any requested repairs are complete. Usually, this occurs the day before closing day.
6. Closing day/signing appointment
The buyer and seller sign all required documents, including loan papers, the promissory note, the deed, and any affidavits or disclosures required by law. The buyer wires pays their down payment and closing costs, typically by cashier’s check or proof of wire transfer.
7. Funding, recording, and verification
In most transactions, the lender wires loan funds to escrow on the same day, and escrow confirms that all payments – including the buyer’s funds, lender funds, and closing costs – are received. The deed is then recorded with the county, legally transferring ownership to the buyer.
8. Disbursement and close of escrow
Escrow distributes funds to the seller, agents, and other parties, completing the transaction. Keys are delivered according to the contract, marking the official close of escrow.
Why the close of escrow matters in your real estate transaction
The close of escrow is the point at which a real estate transaction is officially complete. It ensures that both buyer and seller have met all contractual obligations, funds are properly disbursed, and the deed is recorded with the county, legally transferring ownership.
This step protects everyone involved: buyers can be confident the property is free of liens, and sellers know they will receive their proceeds. It also triggers post-closing processes, like setting up an escrow account for taxes and insurance. In short, close of escrow turns the contract into reality, marking the legal transfer of the home and the conclusion of the transaction.
FAQs: Close of escrow
Can escrow close early?
Yes, if all conditions are met, documents are signed, and funds are ready, escrow can close earlier than scheduled. Early closing requires coordination among the buyer, seller, lender, and escrow officer. However, closing escrow early doesn’t necessarily mean you’re able to move in sooner – always confirm with your agent and escrow officer.
What type of issues can occur during close of escrow?
Several issues can delay or complicate the close of escrow. Common problems include last-minute title or lien issues, appraisal or inspection discrepancies, incomplete repairs, missing documents, or delays in lender funding. Any of these issues may require additional negotiation, documentation, or an escrow extension to resolve before the transaction can be finalized.
What happens if funding is delayed?
If the lender doesn’t wire funds on time, closing is postponed until the money is received. This can affect recording and key delivery, so the buyer doesn’t officially own the home until escrow is fully closed.
What happens if the closing date changes?
Closing dates can be moved up or pushed back if all parties, including the lender and escrow officer, agree. Even if escrow closes early, possession and key delivery may still follow the terms outlined in the purchase contract.