In real estate transactions, escrow money, often referred to as an earnest money deposit (EMD), is held by a neutral third party to ensure the funds are secure and the transaction proceeds smoothly. This money demonstrates the buyer's commitment to the purchase and is eventually applied towards the total amount due at closing.
Typical Holders of Escrow Funds
The entity responsible for holding the escrow money can vary depending on the type of real estate transaction.
- In typical resale transactions, the escrow money is usually held by the real estate company that is representing the buyer. They keep the funds in a dedicated escrow account, separate from their operational accounts, until the closing or settlement date.
Escrow Holders in New Construction
When purchasing new construction, the parties who may hold the earnest money deposit can differ:
- Real Estate Firms: Either the real estate firm representing the buyer or the firm representing the builder/seller might hold the EMD.
- The Builder: In some cases, especially with larger developments, the builder themselves may hold the earnest money deposit.
- Closing Attorney: A closing attorney involved in the transaction may also be responsible for holding the escrow funds.
The Purpose of Escrow Money Deposits
The escrow money deposit serves as a good faith gesture from the buyer, showing their serious intent to purchase the property. It provides a level of security for the seller, knowing that the buyer has a financial commitment to the deal. This amount is not an additional cost but rather a prepayment that is subtracted from the overall amount the buyer needs to bring to the closing or settlement table.
Here's a summary of who typically holds escrow money:
| Scenario | Who Typically Holds Escrow Money (Earnest Money Deposit) |
|---|---|
| Typical Resale | The real estate company assisting the buyer |
| New Construction | Real estate firm (either buyer's or seller's) |
| The builder | |
| A closing attorney |
