Title Company Vs Escrow Company, which do you need?

When you are buying or selling a house you know that each side typically has an agent representing them,  But there is a third party that most people don’t know much about.  It’s a Title or Escrow Company, and depending on your state they could be the same or different.

A Title company handles the transfer of the title or ownership of the home.  They make sure the owner is the rightful seller, and that there aren’t any liens on the property.  An escrow company holds any funds involved in the process as an independent 3rd party.   In some States, an Attorney is used instead of a Title Co, in which case there will be a separate Escrow company.

Each does a different job, but sometimes they are combined as a single company, which can make it confusing.  In this post, I’ll explain what Escrow is, and what a Title company does so you will have a better understanding of the process.  

Ultimately you need both, but often they are the same place.

What is a Title company?

In some states, a Title company handles the actual transfer of title of the house.

The title is the ownership of the house.  Some people also call that the Deed, but not every state provides a physical Deed.  Instead, the ownership is just officially recorded at the county courthouse.  

Usually, there is a Title Agent who oversees a small (or large) team to make sure that all the necessary things are done for a proper transfer of ownership.  This title Agent should be available for questions (in addition to your agent being available), and will also be at the closing explaining paperwork and getting signatures.

A Title company is a 3rd party independent agency that works with both the buyer’s agent and seller’s agent in a transaction to make sure everything goes smoothly and then handles the paperwork and the closing at the end of the transaction.

What is Escrow?

Escrow is the gathering of funds from the real estate transaction that is held by an independent third party until all parts of the real estate contract have been met.

An Escrow company can also be a part of a Title company, or it can be separate.  Many states have them combined, but where a Title company isn’t used, like in Attorney states, they will be different.

Some people refer to Escrow as an amount of time, but this can vary based on the times mentioned in the Real Estate contract.  Usually, Escrow is 30-45 days because that is the amount of time needed to process a mortgage.  It can be faster for a cash deal or take longer if there are other conditions that need to be met.

Escrow funds must be held in a non-interest bearing and insured account.

Upon all the terms of the contract being met, the escrow agent disburses or releases the funds to the appropriate parties.

Some of the funds an Escrow account may hold are:

  • Deposits like Earnest or Option Monies,
  • Insurance Prepaids
  • Tax Prepaids, 
  • Down Payment Amounts
  • Repair Costs

Why are Title and Escrow often mentioned together?

In many states, the Title company is also the Escrow company because they both collect and hold the funds properly, and facilitate the transfer of title between the parties.  

Actually, it would be unusual for the escrow to be separated from Title in most cases.  

What does a Title company do?

There are lots of things a Title Company does.  Oftentimes these are ‘behind the scenes, but are necessary so that all parts of the Real Estate Contract are fulfilled.

Here are just a few of the more common things done by a Title company.

  • Ensuring the title is free and clear
  • Checking for Liens
  • Ordering Surveys
  • Getting HOA documents
  • Providing Title Insurance
  • Generating an ALTA and Master Statement
  • Providing a Notary Service
  • Getting all the signatures needed to close and settle the house

Who Picks the Title and or Escrow Company

One of the negotiation points between the Real Estate Agents in the transaction is determining which Title and Escrow Companies will be used.  

While they all do pretty much the same thing, as with all businesses, the people make the difference.

Most buyers and sellers just don’t work with enough Title companies to know the differences, but your agent probably does.  They should be able to find an experienced and cost-effective company that is responsive to all parties.

There are also fees involved – somebody has to pay for the title and escrow services, and these costs are usually negotiated as the contract is being written.

Final Thoughts

While a Title company and Escrow company have different jobs, they are often under the same roof.  Both are necessary parts of a Real Estate Transaction.  Listen to your agent as they can guide you through the process, and recommend a top-notch company to make your experience a great one.

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