To open an escrow account for a home purchase, sign the purchase agreement with the seller, agree on a neutral third party to hold the funds (usually a title company, independent escrow agent, or real estate attorney), complete that company’s opening instructions with government ID, and deliver your earnest money deposit by the deadline in the contract. Once the deposit clears and both sides have signed the instructions, the account is officially open and the clock to closing starts running.
One thing to sort out before you start: in real estate, “escrow account” refers to two different arrangements. The one you open during a purchase is a transaction escrow, which holds your earnest money until the sale closes. A mortgage escrow (or impound account) is something your lender sets up after closing to collect monthly amounts for property taxes and homeowners insurance. The steps below cover the transaction account, which is the one the buyer and seller actively open.
Start With a Signed Purchase Agreement
Nothing happens until the purchase agreement is fully executed by every buyer and every seller. That contract is what the escrow holder follows: purchase price, contingencies, closing date, and how funds get distributed all come from it. Without a signed agreement, an escrow agent has no authority to act, so this is the first document to have in hand.
The contract also tells you two things you’ll need immediately: how much earnest money you owe and how many days you have to deliver it.
Choose Who Will Hold the Funds
Several kinds of professionals can serve as the escrow holder, and which one you use often depends on local custom:
- Title insurance companies handle most residential sales because they verify ownership and run the escrow at the same time.
- Independent escrow agents are standalone companies licensed by state financial regulators, generally subject to bonding and audit requirements.
- Real estate attorneys handle closings and hold escrow funds in some parts of the country as part of their legal representation.
- Banks and credit unions sometimes provide escrow services, particularly on higher-value deals.
Whatever type you use, the escrow holder is a fiduciary for the transaction, not for either party. Client funds have to sit in a separate trust account, never mixed with the company’s own money. Keep in mind what an escrow officer cannot do: give legal advice, interpret contract terms, or draft legal documents beyond filling in factual information on approved forms. Contract questions are for your attorney.
Complete the Opening Instructions
Once the purchase agreement is accepted, the escrow holder sends an opening package, sometimes called escrow instructions. This is the operational roadmap for closing. You’ll fill in details including:
- Purchase price and deposit amount, which must match the signed contract exactly.
- The property’s legal description.
- Lender contact information so the escrow officer can coordinate with your mortgage company.
- How property taxes, HOA dues, and similar charges will be prorated between buyer and seller based on the closing date.
Errors here cause real trouble later. A mismatched purchase price, a stale lender contact, or a blank proration field can delay closing or set up a fight over how funds get distributed. Cross-check every entry against the original purchase agreement before you send it back.
Every party also has to provide government-issued identification, such as a driver’s license or passport, to satisfy federal Know Your Customer rules. These checks confirm that the people signing are who they say they are and help guard against fraud.
Deliver the Earnest Money on Time
The action that actually opens the account is your earnest money deposit. This good-faith payment tells the seller you’re serious. Deposits typically run 1% to 10% of the purchase price, with the exact figure negotiated in the purchase agreement. In slower markets, buyers sometimes land closer to 1% or 2%.
Most purchase agreements require delivery within one to three business days after the seller signs. Weekends and holidays generally don’t count toward that deadline. Miss it and you can be in breach of contract, which gives the seller grounds to walk away, so treat the delivery date as hard.
Wire transfer is the standard method because the funds arrive immediately. Certified checks or cashier’s checks are accepted too, though they may take a few days to clear. Personal checks are rarely accepted. Once the deposit lands and the signed escrow instructions are on file, the account is officially open.
Protect the Wire From Fraud
Real estate wire fraud is one of the most costly scams targeting homebuyers. Criminals hack or spoof email accounts belonging to real estate agents, title companies, or attorneys, then send you fake wire instructions that route your money to their account. The FBI has identified real estate wire fraud as a significant subcategory of business email compromise, with reported losses in real estate transactions reaching roughly $174 million in 2024.1IC3.gov. 2024 IC3 Annual Report Once the money is gone, recovery is extremely difficult.
Before you send the earnest money:
- Verify wire instructions by phone using a number you looked up independently, not one from the email that contains the instructions.
- Treat any last-minute change to wiring details as the single biggest red flag for this kind of fraud.
- Use the encrypted portal your escrow company provides if they offer one, rather than plain email.
- If you suspect you wired to a fraudulent account, call your bank immediately and file a complaint with the FBI’s Internet Crime Complaint Center as quickly as possible.2FBI.gov. Business Email Compromise and Real Estate Wire Fraud Congressional Report
What Opening Escrow Costs
Escrow service isn’t free. The escrow holder charges a fee for managing the account, coordinating documents, and disbursing funds at closing. Fees vary widely by location and transaction size, but for a typical residential purchase they generally run from a few hundred dollars to a couple thousand. Who pays—buyer, seller, or a split—depends on local custom and what your purchase agreement says.
The escrow officer itemizes the fee and every other closing charge, including title work and county recording fees, on the settlement statement before closing, so you’ll see the final amounts before you sign anything.
What Happens Right After the Account Opens
Once the deposit clears and the escrow instructions are signed, you’ll get a receipt for deposit confirming the amount now sitting in the trust account. The escrow officer also assigns a unique escrow number to your transaction. Share that number with your mortgage lender, real estate agent, and anyone else involved so loan documents, insurance policies, and other filings all link to the correct file.
From here, the escrow officer starts working through the steps needed to close: ordering the title search, gathering lender documents, coordinating inspections, and preparing the settlement statement. For a residential purchase, opening to closing usually runs 30 to 60 days, depending on your contract and how quickly the contingencies are cleared.
If the Account Earns Interest, Expect a W-9
If your escrow account earns interest, that interest is taxable income. When the account is set up as interest-bearing, the escrow holder will ask you to complete IRS Form W-9 so they have your taxpayer identification number on file.3Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification If the interest hits $10 or more in a calendar year, the escrow holder files Form 1099-INT and sends you a copy for your return.4Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Under $10, no 1099 comes, but the interest is still reportable income.