Real Estate Escrow Explained: Who Controls Your Money & How to Protect It

Escrow is designed to protect buyers and sellers — but most people enter escrow without understanding who actually controls their money, what can go wrong, or how disputes start. This guide explains how real estate escrow really works and how to protect yourself.

💡 Quick Answer

In a real estate transaction, escrow holds your money but does not control it. Funds are released only when contract terms are met and proper written authorization is provided. If a dispute arises, escrow must freeze the funds until it’s resolved.

How Real Estate Escrow Works (High-Level)

Escrow begins after an offer is accepted. A neutral third party holds funds and documents while both sides complete their contractual obligations. Once all conditions are satisfied, escrow releases funds and ownership transfers at closing.

Escrow does not make decisions — it follows written instructions and the purchase agreement exactly as written. For a foundational explanation, see What Is Escrow in Real Estate?.

📌 Who Chooses the Escrow Company or Holder?

Many buyers assume escrow is automatically assigned. In reality, the escrow holder is often negotiated in the purchase agreement, based on local custom, or subject to lender approval.

  • The buyer may choose escrow
  • The seller may choose escrow
  • The choice may be negotiated as part of the offer
  • Lenders may require approval of the escrow holder

Escrow may be handled by a title company, independent escrow company, or real estate attorney. Learn more in What Is an Escrow Agent in Real Estate? and Who Holds Escrow Money in a Real Estate Transaction?.

Who Controls Your Money During Escrow?

Escrow safeguards funds — but control comes from the contract. Money is released only when all conditions are met and written authorization is provided.

If a disagreement occurs, escrow cannot decide who is right. Funds are frozen until the issue is resolved, which is why earnest money disputes are so common. Learn how deposits are protected in Secure Your Earnest Money: Bank Accounts & Escrow Explained.

⚠️ What Can Go Wrong During Escrow

  • Missed contingency deadlines
  • Financing or appraisal delays
  • Inspection disagreements
  • Title defects
  • Poor communication between parties

Because escrow operates strictly on written instructions, even small mistakes can cause major delays. For deeper explanations, see Escrow Disputes Explained and Escrow vs Closing in Real Estate.

🚩 Common Escrow Red Flags

  • Delayed or undocumented deposits
  • Pressure to sign unclear instructions
  • Funds released without authorization
  • Lack of transparency or reporting

Learn how to spot violations early in Protect Your Funds: Avoid Real Estate Escrow Violations.

Mortgage Escrow vs Transaction Escrow

Transaction escrow is temporary and ends at closing. Mortgage escrow accounts continue after closing and are used to pay property taxes and insurance.

For clarity, see What Is a Mortgage Escrow Account? and What Is an Escrow Shortage or Surplus in a Mortgage?.

📄 Do You Need an Agent or Attorney?

Some states require real estate attorneys, while others rely on agents, title companies, or independent escrow providers.

Learn when legal representation is required in When Do You Need a Real Estate Attorney?.

📌 Summary

  • Escrow holds funds but does not control them
  • The escrow holder is often negotiable
  • Most escrow problems stem from misunderstandings
  • Clear instructions and deadlines reduce risk