Escrow is a critical part of every real estate transaction in Georgia. Whether you are buying a condo in Midtown, purchasing a single-family home in Buckhead, or selling property in Virginia Highland, escrow protects both parties during the contract period.
Understanding how escrow works helps buyers and sellers avoid confusion, protect earnest money, and move confidently from contract to closing.
What Is Escrow?
Escrow is a neutral holding arrangement in which a third party temporarily holds funds or documents until contractual conditions are met. In Georgia real estate transactions, escrow most commonly refers to earnest money deposits and, later, mortgage escrow accounts.
The purpose of escrow is to ensure that money and documents are handled fairly and according to the terms of the purchase agreement.
Earnest Money Escrow in Georgia
When a buyer goes under contract on a home, they typically submit earnest money. This deposit demonstrates good faith and commitment to the transaction.
Where Is Earnest Money Held?
In Georgia, earnest money is usually held in an escrow account by:
- The listing brokerage
- The closing attorney
- A designated third-party escrow holder
Brokerages are required to maintain separate escrow accounts that comply with Georgia Real Estate Commission regulations.
When Is Earnest Money Deposited?
The contract specifies when earnest money must be delivered. This is often within a few days of binding agreement.
Failure to deposit earnest money on time can put the contract at risk.
Escrow During the Due Diligence Period
Georgia contracts include a defined due diligence period. During this time, the buyer may terminate the agreement for any reason.
If the buyer terminates within the due diligence period, earnest money is typically refunded.
Understanding due diligence is essential. You can learn more in the Real Estate 101 section.
When Is Earnest Money at Risk?
After the due diligence period expires, earnest money is generally at risk if the buyer fails to close without a valid contractual reason.
If a dispute arises, both parties must sign a release form authorizing the escrow holder to disburse funds.
Escrow at Closing
Georgia is an attorney state. Closings are handled by licensed real estate attorneys who coordinate the final escrow process.
At closing, the attorney collects and disburses funds including:
- Buyer’s down payment
- Loan proceeds from the lender
- Seller proceeds
- Commission payments
- Property tax prorations
The attorney ensures all contractual obligations are satisfied before funds are distributed.
Mortgage Escrow Accounts
After closing, escrow may also refer to a mortgage escrow account managed by your lender.
This type of escrow is different from earnest money escrow.
What Is a Mortgage Escrow Account?
Many lenders require borrowers to pay property taxes and homeowner’s insurance through an escrow account. Each month, a portion of your mortgage payment is set aside to cover these future bills.
When taxes and insurance premiums come due, the lender pays them from the escrow account.
Why Lenders Require Escrow
Lenders require escrow accounts to reduce risk. Ensuring taxes and insurance are paid protects the lender’s financial interest in the property.
Rising insurance costs in Georgia have made escrow adjustments more noticeable for homeowners.
Escrow Adjustments and Shortages
If property taxes or insurance premiums increase, your escrow account may experience a shortage. The lender may:
- Increase your monthly payment
- Require a lump sum payment to cover the shortage
This is one reason buyers should factor long-term ownership costs into budgeting.
Escrow and Condo Buyers
Condo purchases may involve additional escrow considerations. Buyers should confirm HOA dues, special assessments, and master insurance coverage.
Explore building options through the Atlanta condo buildings directory or focus on Midtown condo buildings and Buckhead condo buildings.
Common Escrow Questions
Who Controls Escrow Funds?
Escrow funds are controlled by the neutral escrow holder according to the contract. Funds cannot be released without proper authorization.
Can Earnest Money Be Returned Early?
Earnest money can be returned if both parties sign a release form authorizing the disbursement.
Is Escrow the Same as Closing?
No. Escrow refers to the holding of funds or documents. Closing is the final transfer of ownership.
Why Escrow Protects Buyers and Sellers
Escrow ensures that money changes hands only when contract terms are satisfied. It reduces risk, prevents disputes, and provides structure to the transaction.
Without escrow, parties would have limited protection during the contract period.
First-Time Buyer Considerations
First-time buyers often encounter escrow for the first time during their purchase. Understanding the difference between earnest money escrow and mortgage escrow prevents confusion.
Additional guidance is available on the First-Time Homeowners page.
Exploring Atlanta Real Estate with Confidence
Whether buying or selling in Midtown, Buckhead, or other Atlanta neighborhoods, understanding escrow builds confidence in the transaction process.
Explore communities through the Atlanta neighborhoods hub and view available homes in Featured Listings.
Final Thoughts
Escrow is a foundational component of Georgia real estate transactions. It protects earnest money, organizes closing funds, and ensures contractual compliance.
If you are preparing to buy or sell and want guidance on how escrow works in your specific situation, you can start the conversation through the Space Intown contact page.
