If you’re buying a new house, there’s no doubt you’ve heard the term “escrow” being tossed around. You understand that escrow involves handing an earnest money check over to a neutral third-party (an escrow service) until the transaction of buying your house is complete; but you don’t quite get why it’s escrow is such an important part of the home buying process. You can’t help but wonder: “Can’t you just keep the earnest money or hand it directly to the seller?”

The answer to the above question is a definite “no” (unless you want to run into trouble); but why? Let’s take a look.

Why is Escrow Important in the Home Buying Process?

The purpose of escrow is to protect buyers and sellers who are involved with the process of, well, buying and selling a home. Here’s why:

For the buyer. Sure, you could hand over an earnest money check directly to the seller; but, if you did that, there’s a chance that he or she would dangle it above your head to get a deal that works better for them.

For the seller. Buyers can keep the earnest money until the transaction is complete, but the seller isn’t going to want to sign over the deed to the house until he or she knows the earnest money will be theirs.

In other words, escrow ensures both the buyer and seller will get a fair deal.