Hey there, Chicago homebuyers!
Let’s talk about something that makes everyone nod knowingly during real estate conversations, even though half of us are secretly thinking, “What the heck is escrow anyway?”
You know that moment. You’re talking to someone about real estate and they mention escrow and you’re like, “Oh yeah, totally!” Meanwhile, you’re wondering to yourself if it’s some kind of fancy savings account or maybe a type of insurance. Don’t worry, we’ve all been there.
We’re the Ben Lalez Team, and after helping over a thousand families buy and sell Chicago real estate, we’ve heard every possible escrow question. Today we’re breaking it down in plain English, because honestly, it’s not nearly as complicated as people make it sound.
But here’s the thing. Chicago does escrow differently than most places. So if you’ve been watching those house-flipping shows or reading about real estate in other cities, some of what you “know” about escrow probably doesn’t apply here.
First Things First – What Are We Actually Talking About?
When people say “escrow” in real estate, they’re usually talking about one of two completely different things:
- Transaction escrow – the money you put down during the buying process (this is what we’re covering today)
- Mortgage escrow – the ongoing account for property taxes and insurance after you own the home
Most people mix these up, which is totally understandable since they both use the same word. But for today, we’re talking about transaction escrow – that chunk of money you hand over when you’re buying a house to prove you’re serious.
Think of it like this: when you put earnest money into escrow, you’re basically telling the seller, “I’m not just window shopping here. I’ve got skin in the game.”
How Chicago’s Escrow Process Is Unique
Here’s where Chicago gets interesting. Most cities have you write one check for earnest money when you make an offer. Done.
Not us. We like to keep things… complicated.
Chicago uses what’s called a two-tier earnest money system. Basically, you’ll write two separate checks at two different times. Why? Because we’re thorough like that.
First payment: Within one business day of your offer being accepted, you’ll need to put down either roughly $1,000 (for homes under $1 million) or $10,000 (for homes over $1 million). This is just to get things started. Context matters, and the numbers above can change. Talk to your agent.
Second payment: About two weeks later, after all the attorney and inspection stuff happens, you’ll put down the rest to bring your total earnest money to 5-10% of the purchase price (again, typically).
So if you’re buying a $400,000 home in Lincoln Park, here’s how it works:
- Day 1 (when contract is accepted): You put down $1,000
- Day 14: You put down another $19,000
- Total earnest money: $20,000 (5% of purchase price)
That $20,000 doesn’t disappear – it gets applied to your down payment and closing costs. But you need to have it available upfront, which catches some buyers off guard.
Who’s Actually Holding Your Money?
Another thing that surprises people: your earnest money usually goes to the listing agent’s real estate brokerage, not some mysterious “escrow company.”
Think of the brokerage as a neutral babysitter for your money. They can’t just hand it over to the seller when they feel like it. They need written permission from both you and the seller, or a court order if there’s a dispute.
Sometimes attorneys hold the money instead, especially for larger amounts. This is pretty common in Chicago since we love our real estate attorneys here. About 85% of Chicago transactions involve attorneys, compared to just 30% in most other cities.
Title companies can also hold escrow, particularly for the final closing. But during the main transaction period, it’s usually sitting in the listing brokerage’s escrow account.
The Timeline That Actually Matters
Let’s walk through what really happens, because timing is everything in Chicago real estate:
Days 1-3: First payment deadline – You’ve got to get that initial earnest money in within one business day, but if there are hiccups, you usually have until the third business day. Miss this deadline? The seller can walk away from the deal. No joke.
Days 1-5: Attorney review period – Here’s something cool about Illinois – you get five business days where your attorney can review the contract and suggest changes (except to the purchase price). Either party can also cancel during this time and get all earnest money back, no questions asked.
Days 1-7: Inspection period – While the attorney stuff is happening, you’re also getting the home inspected. This usually runs about 5-7 business days, and you can negotiate repairs or walk away if you find deal-breakers.
Days 7-9: Second payment time – Once attorney review and inspections are done, you’ll need to pony up the rest of your earnest money. This brings you to that 5-10% total we talked about.
Days 15-45: Mortgage stuff happens – You’ve got to apply for your loan within five business days of the contract, and typically need your mortgage commitment within 30-45 days.
Closing day: Money gets applied – All that earnest money you’ve been paying? It gets applied toward your down payment and closing costs.
Let’s Talk Real Numbers
Since we’re being honest here, let’s look at what this actually costs for different price points in Chicago:
$400,000 home (typical one-bed Lincoln Park condo):
- Initial earnest money: $1,000
- Second payment: $19,000
- Total earnest money: $20,000
- Plus title fees, attorney fees, etc.: about $4,000-$5,000 more
$600,000 home (nice two-bed, two-bath in Lakeview):
- Total earnest money: $30,000 (5%)
- Additional title and attorney costs: $6,000-$7,000
$800,000 home (three-bed, two-bath in Lincoln Park):
- Total earnest money: $80,000 (10% for higher-end properties)
- Additional costs: $8,000-$10,000
Yeah, that’s a lot of cash to have sitting around. This is why we always tell our clients to make sure they’ve got liquid funds available, not just money tied up in retirement accounts or other investments.
Common Myths That Trip People Up
Myth #1: “Earnest money is the same as my down payment”
Nope! Your earnest money gets applied toward your down payment, but it’s not the whole thing. If you’re putting 20% down on a $400,000 home, you’ll need $80,000 total at closing. The $20,000 earnest money is part of that, but you’ll still need another $60,000 plus about 1.5-2.5% in additional closing costs.
Myth #2: “If something goes wrong, I automatically get my money back”
Not necessarily. It depends on why the deal fell through and what your contract says. During attorney review? You’re probably fine. Backing out three days before closing because you changed your mind? That’s a different story.
Myth #3: “The escrow company works for me”
Actually, they’re neutral. They can’t take sides or give you advice. They’re just holding your money until both parties agree on what happens to it.
Myth #4: “This is just a Chicago thing”
The two-payment system? Yeah, that’s pretty much just us. But other cities have their own quirks. New York has really long closing periods. California uses different title companies. Every market has its own personality.
The Wire Fraud Thing We Need To Talk About
Here’s something that’s become a real problem – wire fraud during real estate transactions. Criminals hack into email systems and send fake wiring instructions that look totally legit.
We’re talking serious money here. The FBI says real estate wire fraud cost people almost $1 billion nationally in just one year. And Chicago’s not immune. We’ve had local cases where buyers lost hundreds of thousands of dollars.
How to protect yourself:
- Never trust wiring instructions that come only by email
- Always call your title company or attorney using a phone number you got independently (not from the email)
- If something seems weird, stop and double-check
- Use the same verification steps even if you’ve been emailing back and forth for weeks
Why Chicago Does It This Way
You might be wondering why we make things more complicated than other cities. There are actually some good reasons:
More protection: That attorney review period gives you a real safety net. In most states, once you sign, you’re pretty much committed unless something major goes wrong.
Better legal representation: Having attorneys involved means someone’s actually reading the fine print and looking out for your interests.
Stronger contracts: Chicago real estate contracts tend to be more detailed and protective than the simpler forms used in other markets.
Quality control: The two-tier payment system weeds out buyers who aren’t really serious or financially ready.
The downside? It costs more upfront and takes longer. But most of our clients feel the extra protection is worth it.
When Things Go Sideways
Sometimes deals fall apart. It happens. Here’s what usually occurs with your earnest money:
During attorney review: You can walk away for any reason and get your money back.
Failed inspection: If you can’t agree on repairs and you have an inspection contingency, you get your money back.
Mortgage problems: If your lender falls through and you applied in good faith, you get your money back if you are within your contingency period.
Seller can’t deliver clear title: You get your money back.
You just change your mind: This is where it gets tricky. You might lose some or all of your earnest money, depending on the circumstances and how far along you are.
Seller backs out: You get your earnest money back, plus you might be able to sue for damages.
The key is understanding what your contract says and working with professionals who know how to protect your interests.
How This Compares To Other Cities
Since we work with a lot of people moving to Chicago from other places, here’s how we stack up:
California: Usually just one earnest money payment (1-3%), title companies handle everything, faster closings but less legal protection.
New York: Also attorney-heavy like us, but different contract structures and really long closing periods (60-90 days).
Texas: Title company-driven, simpler contracts, faster process but fewer buyer protections.
Florida: Similar to Texas, but with more investor activity and different disclosure requirements.
Chicago sits somewhere in the middle on cost but tends to offer more protection than most markets. Whether that’s worth it depends on how much you value having experienced legal professionals involved.
What This Means For Your House Hunt
If you’re planning to buy in Chicago, here’s what you need to know:
Budget for it: Make sure you’ve got 5-10% of your target purchase price in liquid funds for earnest money, plus another 2-3% for other closing costs.
Time it right: Don’t make an offer unless you can get that first payment in within a day or two.
Use the attorney review period: Even if you love the house, have an attorney review the contract. That’s what the period is for.
Stay organized: With two payments and multiple deadlines, you’ll need to stay on top of things. A good real estate agent will help track all this.
Plan for delays: Chicago transactions typically take 30-60 days from contract to closing. Don’t book your moving truck for next week.
Working With The Right Team
Here’s the thing about Chicago real estate – it’s more complicated than most places, but that complexity exists for good reasons. Having the right team makes all the difference.
You’ll want a real estate agent who knows Chicago’s specific processes, an attorney who does this all day long, and a lender who understands our market timing. Trying to navigate this stuff alone is like trying to assemble IKEA furniture without the instructions – technically possible, but why put yourself through that?
We’ve seen buyers try to save money by skipping attorney review or working with agents who don’t know Chicago’s quirks. It almost never ends well.
The Bottom Line
Escrow in Chicago isn’t rocket science, but it’s definitely not as simple as some other markets. The two-payment system, attorney review period, and higher upfront costs can feel overwhelming at first.
But here’s what we tell all our clients: once you understand the process, it’s actually pretty logical. Every step exists to protect both buyers and sellers. The extra complexity means fewer deals fall apart at the last minute, fewer legal disputes, and more confidence that everyone’s getting a fair shake.
Is it perfect? No. Is it more expensive upfront than simpler markets? Yes. But is it worth it for the extra protection and peace of mind? Most of our clients think so.
Does Chicago’s escrow process still scare you? Give us a shout, and we’ll walk you through the numbers and timeline so there are no surprises along the way.
After all, buying a home is exciting enough without worrying about escrow mysteries!
