The contract governing funds or documents held by a neutral escrow agent, stating exactly what is held, for whom, and the conditions of release.
The longer version
An escrow agreement appoints a neutral party, usually a title company, to hold money or documents and release them only when stated conditions are met. In a commercial real estate loan it shows up in two different jobs, and it is worth knowing which one is being discussed.
The first is the closing escrow. Loan proceeds, equity and signed documents are deposited with the escrow agent, and the lender's closing instructions say what has to happen before anything is released: the title company is ready to issue the policy, the documents are signed, the conditions are cleared. This is what lets parties in different places close without being in the same room.
The second is a holdback or post-closing escrow. Part of the loan or the purchase price is held back to cover an item not finished at closing, such as deferred maintenance, a tenant improvement, or a punch list, and released when the work is evidenced. The agreement sets the amount, the completion deadline, the evidence required and what happens if the deadline passes.
Both are separate from the tax and insurance escrows, or impounds, a servicer collects monthly. A holdback with no tracked deadline is one of the most common ways a post-closing condition turns into an exception.
Common questions
- What is an escrow agreement in real estate?
- A contract appointing a neutral escrow agent, usually a title company, to hold funds or documents and release them only when stated conditions are met. In commercial lending it governs both the closing itself and any holdbacks for unfinished work.
- What is a holdback escrow?
- Money held back at closing to cover work or an obligation not yet completed, such as repairs or tenant improvements. It is released when the work is evidenced, and the agreement sets the deadline and what happens if it is missed.
- Who acts as the escrow agent?
- Usually the title company handling the closing, sometimes an attorney or a bank. The agent follows the written instructions from the parties and is not on either side of the deal.
- Is an escrow agreement the same as a tax and insurance escrow?
- No. Tax and insurance escrows, also called impounds or reserves, are monthly deposits a servicer collects to pay those bills. An escrow agreement governs funds or documents held by a third party until conditions are met.