California Real Estate SalespersonTransfer of PropertyEasy
During a real estate transaction, why must an escrow holder remain a neutral third party who acts only under mutual written instructions from buyer and seller?
- ABecause escrow holders set the final sale price between the parties
- BBecause acting for only one party would create a conflict with the escrow holder's fiduciary duty to all parties
- CBecause escrow holders are licensed attorneys who must represent both sides equally
- DBecause the escrow holder is responsible for negotiating repairs and contingencies
Show answer & explanationAnswer & explanation
Correct answer: B. Because acting for only one party would create a conflict with the escrow holder's fiduciary duty to all parties
An escrow holder is a dual, neutral agent for both buyer and seller and owes a fiduciary duty of impartiality to all parties in the transaction. The escrow holder can only act according to instructions signed by all parties and cannot favor one side, negotiate terms, or set price.
Why the other options are wrong
- A. Sale price is negotiated by the buyer and seller, not determined by escrow.
- C. Escrow officers are not required to be attorneys and do not act as legal representatives.
- D. Negotiating contingencies is the role of agents/brokers or the parties themselves, not escrow.
Escrow Neutrality
An escrow holder is a neutral dual agent that must follow only the mutually agreed written instructions of both buyer and seller.
- Escrow cannot favor one party over another
- Any changes to instructions require agreement from all parties
- Escrow holds documents/funds until all conditions are satisfied
Memory trick: Escrow is the Switzerland of real estate—neutral to all