Escrow Deposits Explained

What Is an Escrow Deposit?

An escrow deposit is a sum of money a buyer provides early in the offer process to show good faith in purchasing the property. It’s held by a neutral third party, usually the listing brokerage or an attorney, until closing.

The deposit becomes part of the buyer’s total down payment or closing costs—and offers the seller reassurance that the buyer is serious about completing the transaction.

🔑Key Components of Escrow Deposits

1. When and How Escrow Deposits Are Made

In Massachusetts, the escrow process typically involves two deposits:

Initial Deposit: Submitted with the offer to purchase, usually $1,000 or a modest amount.

Second Deposit: Made at the time of signing the Purchase & Sale Agreement (P&S), typically 3–5% of the purchase price.

These funds are held in an escrow account and are only disbursed under the agreed-upon contract terms.

2. Who Holds the Escrow?

Escrow deposits are held by a neutral party, often the listing broker or the seller’s attorney. Their responsibility is to hold the funds securely and release them only with written agreement or in accordance with contract provisions.

Massachusetts real estate law requires escrow holders to manage funds ethically and according to strict fiduciary rules.

3. What Happens to the Escrow Deposit at Closing?

At closing, the escrow deposit is credited toward the buyer’s total funds due, such as the down payment or closing costs. It's not an extra fee—it’s simply paid earlier in the process.

Buyers will see the escrow credit listed on their closing disclosure.

4. Can a Buyer Lose Their Escrow Deposit?

Yes—but only under certain conditions. If a buyer fails to meet contract obligations without a valid contingency (like a financing or inspection clause), they may forfeit the deposit to the seller as compensation for backing out.

Clear communication and following your contract deadlines help avoid this outcome.

💡 Why Escrow Deposits Matter

Escrow deposits play a critical role in building trust between buyers and sellers. For sellers, it’s a financial signal that the buyer is committed. For buyers, it secures their position in the transaction while protecting their rights through contingencies.

In a competitive Massachusetts market, a strong and timely escrow deposit can also help your offer stand out.