Understanding Escrow: A Simple Guide for California Home Sellers
Escrow: The Neutral Middleman
Escrow is a legal arrangement in which a neutral third party—the Escrow Holder or Escrow Company—holds all funds (the buyer's earnest money deposit and loan proceeds) and documents until every condition of the purchase contract is satisfied. For sellers, escrow provides critical protection by guaranteeing you won't transfer the deed until the buyer's money is confirmed and all your mortgage debts are paid off. The escrow holder acts as an impartial intermediary, ensuring both buyer and seller fulfill their obligations before the sale is complete. In California, the typical escrow period runs 30 to 45 days from the opening of escrow, though cash transactions may close faster.
Key Milestones for the Seller
| Escrow Phase | Seller's Responsibility |
|---|---|
| Opening Escrow (Day 1–3) | Sign the initial Escrow Instructions. Your agent will order the Preliminary Title Report and coordinate escrow setup. |
| Due Diligence (Day 5–17) | Complete and provide all Mandatory Disclosures, including the Transfer Disclosure Statement (TDS) and Natural Hazards Disclosure (NHD), to the buyer for review. |
| Loan & Appraisal (Day 15–30) | Cooperate with the appraiser's site visit. Escrow requests your Payoff Demand Statement from your current lender to determine the exact amount needed to clear your mortgage. |
| Closing Prep (Day 30–40) | Sign final closing documents, including the Grant Deed, with a notary. Instruct the Escrow Officer to pay off your mortgage and deduct closing costs from your proceeds. |
| Closing Day (The Finish Line) | Escrow confirms the loan has "Funded" (money received from the buyer's lender) and the Deed has been "Recorded" with the County Recorder's Office. This is the official moment ownership transfers to the buyer. |
Calculating the Take-Home: Payoffs and Proceeds
The escrow holder manages all financial transactions on your behalf. They will pay off your existing mortgage balance, subtract your real estate commission (typically 4–6%), deduct seller closing costs (transfer taxes, title insurance, escrow fees), and wire the remaining net proceeds directly to you.
A critical consideration for California sellers is the Transfer Tax, which varies by county and municipality. Los Angeles County transfer tax is typically 0.11% of the sale price, though some cities add additional documentary transfer taxes. These costs can be substantial on high-value properties and should be factored into your net proceeds calculation.
Your escrow officer will provide a detailed Closing Statement (Seller's Estimated Net Sheet) before closing, breaking down all payoffs, commissions, and deductions so you know exactly what to expect. Review this carefully and ask questions about any unfamiliar line items. Once you sign the closing documents and the deed records, you have officially transferred ownership and your net proceeds are typically wired to your designated account within one to three business days.
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