WHAT IS ESCROW? WHY IS IT IMPORTANT???

[Charlie Moore]

- In your own words, explain escrow.....

- Why is it important, how do i set it up in a bank....

-New To investing... THANKS! HELP!!!

[Chris Mason]

Simplest terms, escrow is merely a neutral 3rd party who operates based on instructions from those involved in the transaction, typically those instructions are in the form of a contract that both parties have signed. 

Let's use a non-real estate escrow example, drugs always make for fun metaphors. 

Suppose I'm a drug wholesaler who buys from importers, and you're a retail drug dealer who operates a few street corners.

I show up with my 20 pounds of drugs, you show up with your $10,000 to buy it. We both agree to this.

We exchange. I count the money and feel that I am shorted. You weigh the drugs and feel you've been shorted.

We proceed to shoot each other and the results are on the evening news tomorrow.

Suppose we have a non-real estate escrow officer. 

Suppose I'm a drug wholesaler who buys from importers, and you're a retail drug dealer who operates a few street corners.

I show up with my 20 pounds of drugs, you show up with your $10,000 to buy it. We both agree to this.

The escrow officer demands that we put the agreement in writing and both sign the contract. We hand her the fully signed contract. I hand the 20 pounds to the escrow officer. You hand your $10,000 to the escrow officer.

She weighs the drugs and counts the money. Tells us both that we're short - there is only 19.5 pounds and $8500 in escrow. The transaction does NOT balance!

She tells us that neither of us are getting ANYTHING until she either has a) the agreed upon amounts in escrow or b) gets a fully executed addendum to the contract specifying 19.5 pounds for $8500 or c) gets a fully executed addendum cancelling the transaction or d) it goes to binding mediation or a court to determine the outcome, at which point she will do whatever the mediator or court says to do (I'm sure you can see why IRL drug dealers don't use escrow officers, heh).

You and I work something out because that is the ONLY way that either of us are getting ANY money or drugs. No one gets shot, because no matter what happens with the shooting, the escrow officer still has all our stuff. We have to make HER happy or we're both screwed (let's pretend you can't shoot escrow officers in my imaginary world that I'm making up for this example).

In real life with real estate escrow officers, sometimes they end up looking like the bad guy because they hold everyone accountable to the contract and want everything in writing. Also in real life, my imaginary escrow officer above was a "she" because the overwhelming majority of real estate escrow officers are female for whatever reason.