Welcome to San Diego Blog | May 30, 2018

Escrow & Contingencies Explained



As a professional Real Estate Agent, I work with home buyers and sellers on a day-to-day basis. Since I am in the business every day, the terms “Escrow” and “Contingencies” are very common to me, however, I realize that many buyers and sellers don’t completely understand what they mean and how they relate to the home buying process.  I have put together this quick blog post to set you up with the education you need for a smooth transaction with your next purchase or sale.

What is an Escrow? 

The definition on the Residential Purchase Agreement (RPA) defines Close of Escrow as the following:

Including “COE”, means the date the grant deed, or other evidence of transfer of title is recorded. 

Once an offer is accepted by the seller, the listing agent will then “open escrow” and escrow will act as a neutral third-party; handling funds, documents, and tasks specific to “closing escrow” as agreed to in the Residential Purchase Agreement (RPA)

This is an essential part of each transaction because escrow companies will ensure proper documentation and correctly distribute funds or fees to each party. It is important to let your escrow office and agent know of any planned trips or vacations that may occur during the course of escrow.

Once the earnest money deposit (typically 3% of purchase price) is sent to escrow, the property is now “In Escrow”. This means that the property has not sold yet, but is in the process of being sold. Once terms and agreements are satisfied during this period, the buyer’s funds will be transferred to the seller  & the property will record. It is now considered as “closed escrow” and sold! 

What is the Escrow Timeline?

There is no specific timeline for an escrow period and is chosen by the buyers or sellers during their initial offer or negotiation stage.

The timeframe that is agreed upon represents the timeline that will be used from offer acceptance to closing. I have seen multiple lengths of escrow periods and there is no right or wrong answer. It can be 10 days or 300 days, but most clients choose a 30 or 45-day escrow. The timeline for your escrow period depends on the situation of the parties involved in the transaction. In the current landscape of the marketplace, a shortened close of escrow timeframe could mean the difference between winning or losing the home. If you plan to use financing, you should be sure to talk to your lender to see exactly how much time they may need to fund your loan. Not all lenders are the same, some need 45 days, others need 25, but it is important to know so that you can work that into your offer.

What are Contingencies?

In lamens terms, a Contingency is essentially a contract term that means that something has to happen before something else can happen. In a real estate transaction, there a multiple reasons for a contingency to be included in an offer. For instance, a buyer may make an offer contingent on the sale of their current home or a seller could accept an offer on their property contingent on the fact that they find a replacement property.

So what does a Contingency do for me?

In a standard Residential purchase agreement (RPA) the buyer or seller has a specific number of days or timeline in which they must complete the contingency. If the contingency is not completed before the deadline, the agreement can be canceled. For instance, if a buyer learns about a major health or hazard issue about home during their inspection contingency and the buyer decides to cancel the purchase, they can back out of the agreement and receive their refundable earnest money deposit. On the other side of the transaction, if a buyer fails to release their contingencies within the timeframe on the agreement, the seller can also cancel the agreement. Contingencies are put in place to protect both the buyer and the seller and is important that all parties understand they must perform during these timelines. 

What are the Contingency Timelines?

Both buyers and sellers can have contingencies and there is no right or wrong timeline for these contingencies as it pertains to the specific situation of the parties to the transaction.  Below is considered the business standard & default timeline for the residential purchase agreement:

  • Home Inspection – 17 day “due diligence” period. This is the timeframe that you have to get any and all inspections on the property. That includes termite, mold, roof, and more. This is the time you will want to use to find out exactly what type of home you are buying.
  • Appraisal – 17 day period. This is the timeframe in which your lender will send out an appraiser to appraise the property.
  • Loan – 21 day period. This is the timeframe in which your lender will use to secure financing and funding for the loan.

Timelines and the Market

It is important to talk with a real estate agent, like me, about the current micro-market for the specific area/ home you are planning to purchase or sell. In a “hot market”, many buyers and sellers will shorten their contingency or escrow timelines in order to edge out the competition. 

So what does Day(s) actually mean?

This is an extremely important part of how the timelines are calculated. On pg 9 of the Residential Purchase Agreement (RPA) under section 30 – Definitions, we have the following:

  • “Days” – means calendar days. However,  after acceptance, the last Day for the performance of any act required by this agreement (including Close of Escrow) shall not include Saturday, Sunday or legal holiday and shall instead be the next day.
  • “Days After” – means the specified number of calendar days after the occurrence of the event specified, not counting the calendar date on which the specified event occurs, and ending at 11:59 PM on the final day.
  • “Days Prior” – means the specified number of calendar days before the occurrence of the event specified, not counting the calendar date on which the specified event is scheduled to occur.


Keeping track of these important timeframes, recommending competent home inspectors, staying on top of lenders and explaining exactly how these relate to each specific client and transaction are just a few of the important values that I provide to my clients throughout the escrow process. Who you work with matters!



Written by: Dannecker & Associates

Categories: Buyers, Luxury San Diego Condos, Real Estate Investment, Real Estate Tips for Buyers, Real Estate Tips for Sellers, Sellers, Tips for Buyers

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