What is Escrow and what are contingencies?

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Part 3: Escrow and Contingencies

What is Escrow?

So we went out, we've done our shopping, we found the perfect home. We made an offer and it's been accepted.

Escrow basically refers to the grant deed and transfer of title for a home.

Escrow acts as a third party in this transaction—handling the transfer of funds, exchanging documents, and other tasks in the escrow process.

When a home is “in escrow” that means it is in the process of being sold.

When escrow is “closed” that means the home has officially been sold and transferred!

Step 4:

Begin the escrow process


The First Step in the Escrow Process

The first step is to deposit an EMD—an Earnest Money Deposit. ‘

An Earnest Money Deposit is a deposit a buyer gives a seller as a sign of good faith. Transferring over the rights of a home is a huge deal, and it’s important to know that a buyer is serious about purchasing a home.

Generally the deposit is about 1% of the purchase price of the property. So, for example, if you wrote an offer on a $500,000 house, the EMD would be $5,000. That money remains yours and is still protected throughout the contingency time frame of the 30-day escrow.

Do note, not all escrows are 30 days. Typically the length of the escrow depends on the clients and it can be as short as ten days to as long as a couple hundred days.

Now what’s the first part to the escrow process? Contingencies.


1st Contingency

Home inspections

First off, What is a Contingency?

A contingency is basically a fancy contract word that means one thing needs to happen before the next step can follow.

The contingencies provide protection and accountability on both sides of the seller and the buyer.

The first contingency is a due diligence period of 17 days (unless negotiated otherwise) for all inspections of a home to be completed.

Most Agents have their recommended home inspector, but that doesn’t always mean you are required to use them. If you have a preferred company you would like to choose to inspect the home, go for it! Just make the proper arrangements with your Buyer’s Agent and schedule those inspections.

So, why the inspection?

"When you go to a doctor for a physical that's what the home inspector is doing for the home. They're doing an overall, general inspection." - Amy Cruz

So within that specified time frame you need to order and complete all of the property inspections and find out what condition your potential home is in.

So, what kind of inspections?
They check to see if further maintenance is needed such as:

  • Plumbing

  • Air Conditioning

  • Electrical

  • Roofing

  • Pool (if there is one)

  • Termites

  • Mold

  • Etc.

Now, how much is this going to cost?

An inspection can cost anywhere between $350-$500 depending on the size of the home. The amount will be due at the time of inspection and is nonrefundable.

Before the home is even yours you will be investing some money into the home. It’s just a part of the home buyer process you have to accept. Money will be spent. So make sure you are truly interested in moving forward in the escrow process. Only make offers on homes that feel like the one.

What if we don’t finish our inspections?

If you are not finished with all the necessary inspections don’t fret. You can ask for an extension on the timeframe, but do know that timing is key in any transaction, so stay on top of things when possible. The sooner it’s finished, the better.


2nd Contingency

Appraisal and loan

Moving on to the second contingency.

The second contingency is a 21 day period (unless negotiated otherwise) for your loan and appraisal.

Again, this time restraint can be extended if necessary, but is not recommended.

The appraisal period is when your lender will send an appraiser out to the property to have it appraised and determine the value of the home.

The loan period is when the lender secures financing and funding for the loan you need to acquire.

Pretty straight forward and simple right?


Let’s back up this home offer for a second.

So, there’s a thing we real estate agents like to call “comparables”.

But what are comparables?

Comparables are the surrounding homes of the home you love. As a Buyer’s Agent we will look for all active, pending, and recently sold homes on the surrounding market and assess how much you should be spending on your dream home. _

At Lori Alvarez and Team we want to make sure you’re getting the best bang for your buck. By using “comparables” we can negotiate and ensure that:

  1. The seller’s price is fair

  2. We aren’t overspending and

  3. We’re getting the market value of the house.

And the best part? All of the information we gather will be emailed directly to you so you can review it later and make a well informed decision.


Someone else wants my dream home! Now what?

This happens! Don’t worry. If we are being competitive on an offer on a house because others want the home too we can get more aggressive. We can shorten the contingency time frames and really hustle to get all the necessary paperwork and documents finished to properly present an offer. Moving quickly will help your offer get accepted, but of course isn’t guaranteed.

Being more aggressive can look like:

  1. Moving up the inspections from 17 to 10 day completions

  2. Focusing more heavily on your needs

  3. Expert negotiation

So phew! The crazy part getting the inspections completed and the paperwork filled out is over. Now we jump into releasing the contingencies.

Step 5:

release contingencies

When do we release contingencies?

Once everyone is in agreement—the buyer, the seller, the loan team, your agent—then things start moving. If you’re all on the same page and you still love the house and can envision sipping coffee on your dining table with a smile then it’s time to move forward.

At this point, when you release contingencies, the "$5,000" deposit becomes the sellers.
If you choose to back out of escrow after you've released contingencies that "$5,000" remains as the sellers.


Again—Expect to spend a little money before the home is even yours. It's just a part of the journey to making your dream home a reality.

Now you may wonder, what's the next step?

I’ve done the grunt work, the research, the papers, the inspections, the crazy money transfers, now what?
Well, the best part.
You get your keys! Yay!

But not just yet! We have a few more things to cover before we get to the best part of our journey.

Next we will talk about what it looks like if you back out of the escrow process.


Want a sneak at what this Buyer’s Consultation is like? Check out the video below!


We hope these tidbits help you on your journey!

Feel free to contact us at Lori@lorialvarez.net and Follow Us to Your Dream Home or call us at 909.227.4196.


This is a part of a series so be on the look our for our next post coming out—part four where we cover some of questions about backing out of the escrow process at a Buyer’s Consultation.


Thanks for reading.

Be boldly blessed.

Disclaimer always verify all the info with the licensed professional of your choice and make that us! ☎️ Call us at 909-227-4196!

Hasta Pronto! Lori Alvarez & team, kw Realty dre 01794115