What specific function does an escrow company perform during a real estate transaction?

In a real estate transaction, the primary function of an escrow company is to act as a neutral third party that facilitates the closing process. One of the key responsibilities within this role is to handle the calculation of prorations. Prorations are adjustments of costs that are divided between the buyer and seller for items such as property taxes, home owner association dues, or other recurring expenses based on the closing date.

Calculating prorations ensures that both parties only pay for their fair share of expenses during the period they own the property. For instance, if a property tax bill is due in full but the closing occurs halfway through the billing period, the escrow company will calculate how much of the tax bill is the responsibility of the seller and how much will be the responsibility of the buyer, adjusting the final settlement statement accordingly.

In contrast, processing loan forms, authorizing commission payments, and offering title insurance are not primary functions of an escrow company. Processing loan forms is typically handled by lenders or mortgage companies, authorizing commission payments is usually a responsibility of the broker or agent involved in the transaction, and title insurance is provided by title companies to protect against future claims on the property’s title. Thus, the calculation of prorations is distinctively aligned with the escrow