What Is Escrow? A Simple Guide for DC Metro Buyers and Sellers

When you’re buying a home in the Washington DC metro area, you’ll quickly encounter a term that can feel a little mysterious: escrow. It’s an important part of the real estate process, especially in DC, Maryland, and Virginia — but what exactly does it mean, and how does it work here?

Here’s how escrow — or earnest money deposits — work for home buyers across DC, Maryland, and Virginia.

What is escrow or earnest money deposit?

What Is Escrow?

Escrow is a neutral holding process that protects both the buyer and the seller during a real estate transaction.

When you put money into escrow — usually your earnest money deposit — it’s held by a third party (like a title company in our region or escrow agent in other parts of the country) until all the terms of the sale are completed.

The purpose of escrow is to ensure both sides meet their obligations: the buyer delivers funds, the seller provides clear title, and everything happens according to the agreed terms.

Local Tip: We Usually Say “Earnest Money Deposit” (EMD)

In the DC metro area, you’ll hear agents, lenders, and even contracts refer to the escrow funds as the earnest money deposit (often shortened to EMD) or buyer's deposit. It’s the same concept as escrow , and although I don't know the etymology of “EMD”, but in my mind it makes it easier to explain that this money shows the buyer’s good-faith commitment to purchasing the home.

How Escrow Works for DC Metro Buyers

In the DC metro area, after your offer is accepted:

• You’ll typically deposit earnest money (often 1–3% of the purchase price) into an escrow account ie the title company who is processing your sale.

• The escrow holder manages these funds securely until settlement, when the money is applied toward your purchase.

The earnest money deposit (EMD) is a way to show the seller that you are serious about buying the home. At closing, your EMD is credited toward your total due at settlement.

If the transaction falls through because of a reason outlined in the contract — such as a financing, inspection, or appraisal contingency — the EMD is typically returned to the buyer. However, if a buyer decides not to move forward for a reason not protected by a contingency, the seller is usually entitled to keep the EMD under local contract laws.

Understanding when you can (and cannot) recover your earnest money deposit is crucial to protecting your interests during the homebuying process.

Escrow in Washington, DC

• Escrow Holder: Typically managed by the title company selected by the buyer.

• Earnest Money: Deposits are usually held by the title company.

• Unique Process: In DC, the title company often serves as both escrow holder and settlement agent, making the process more streamlined.

• Release Rules: If a contract falls through, both the buyer and seller must sign a release agreement before funds can be disbursed. Without mutual agreement, funds remain in escrow until resolved — sometimes requiring legal action.

Escrow in Maryland

• Escrow Holder: Can be either the real estate broker or a title company, depending on the agreement and location.

• Earnest Money: Maryland law requires it to be deposited into a non-interest-bearing escrow account within seven days of receipt (unless the amount is very high and will be in escrow for long enough for it to merit a interest bearing account).

• Unique Process: Buyers and sellers need to agree in writing (on standard association provided forms) to release escrow funds.

• Regional Note: In Montgomery County and surrounding areas, title companies are commonly used for holding escrow funds, similar to DC practices.

  
  

Escrow in Virginia

• Escrow Holder: Usually the title company, but the buyer's broker company can do that as well.

• Earnest Money: Virginia requires that escrow funds be deposited into a federally insured account within five business banking days.

• Release Rules: Mutual agreement is still required to release escrow, but Virginia law allows parties to petition the court to resolve disputes more quickly than in DC or Maryland.

Key Differences Across DC, Maryland, and Virginia

Comparison of escrow practices across Washington DC, Maryland, and Virginia.

Pro Tip: Why Escrow Timing Matters More Than You Think

In the DC metro area’s competitive market, the amount of your earnest money deposit (EMD) can help strengthen your offer — sometimes significantly.

While EMDs typically range from 1% to 3% of the purchase price, offering a higher EMD can show the seller you are highly committed to closing. In multiple-offer situations where several offers are otherwise similar, a larger earnest money deposit can sometimes be the deciding factor that tips the scales in the buyer’s favor.

It’s a small but strategic way to make your offer stand out — especially in fast-moving markets like Washington DC, Montgomery County, Arlington, and Northern Virginia.

Final Thoughts

Escrow — or earnest money deposit — is an essential part of buying a home in DC, Maryland, or Virginia. Understanding how it’s handled differently in each jurisdiction can help you protect your investment and stay a step ahead during the homebuying process.

If you’re preparing to buy in the DC metro area, having a real estate advisor who understands these local nuances can make a real difference in navigating escrow with confidence.