Settlement, Closing, Escrow

The escrow agent, also known as a "closing" or "settlement" agent or officer, is an impartial third party who plays the important role of overseeing the final details of a real estate transaction. Without a closing, there is no sale.

A closing begins when a purchase and sale agreement is signed and ends when the property changes owners. Typically, the process takes four to eight weeks.

Note: The term "escrow" is used in some states (Southern California, Oregon) while other states (New York, New Jersey) refer to the process as "settlement" or "closing" services.

In northern California, the title company will often handle the closing; in southern California it's common for an independent escrow company to oversee the closing.

The person in charge of the closing must be independent, as he or she represents all sides of the transaction and makes sure that all the terms of the contract are met. The escrow or closing agent's general responsibilities include:

Holding financial deposits in trust
Writing detailed closing instructions based on the purchase agreement
Gathering all legal documents related to the transaction
Ordering a title examination or preliminary report on the property
Clearing all title issues discovered during the search
Securing title insurance
Collecting documents from the buyer's lender
Making sure all terms and conditions of the purchase contract are met
Recording the deed and other necessary documents
Ensuring that the process moves along smoothly and that the transaction closes on time

What are common closing costs?

If you are taking a loan to finance your purchase, here are some common closing cost expenses:

A closing fee for the escrow or closing agent
Preparation of legal paperwork
Appraisal review fee
Credit report fee
Underwriting fee
Mortgage insurance
Survey fee
Termite inspection fee
Notary fee for authenticating signatures on legal documents
Homeowner's insurance
Courier and overnight delivery fees
Tax service fee
Recording and transfer fees

Fees for these services vary. Some banks and other lenders use their own closing agents. Some title companies offer special rates that may include escrow or settlement services, home warranty [1] and title insurance [2] at a "bundled" rate, so it pays to shop around.

Who pays?

Generally, the buyer pays most of the closing fees. In some states, the buyer and seller share the costs. In others, the seller is responsible for the closing fees.

The party that pays the closing expenses is negotiable. A motivated buyer or seller may agree to pay all escrow closing fees as a way to finalize the deal.

Learn more about who pays what in California [3]

Smart Tips

Be sure to budget for your closing costs. These expenses are separate from your mortgage costs.
Shop around for escrow or closing services, ask in advance what fees may be negotiable.
Pay close attention to the preparation of the real estate purchase agreement. This is the basis for the closing instructions that the escrow or closing agent will follow.
Make sure that all the conditions listed in the purchase agreement and all lender's requirements have been met (by both sides) before you sign. (The escrow instructions should never contradict the purchase agreement that the buyer and seller have signed. If mutually agreed upon changes have to be made, an amendment can be added.)
Read all the documents carefully before you sign to make sure they reflect all the terms that the parties have agreed upon.
Do not sign a document that you do not understand. Ask the closing agent or your attorney in advance for explanations. Remember that closing agents are neutral third parties. They can explain, but not advise.
You'll be expected to bring a certified or cashier's check to cover your total closing costs when you sign the closing documents. Your settlement agent can give you the correct amount a day or so before the close.
Also, bring proper identification (Driver's License, Passport) with you to the signing. The notary public will ask for it.